Mid-Morning Look
Monday, January 27, 2025
Index |
Up/Down |
% |
Last |
DJ Industrials |
-19.61 |
0.04% |
44,405 |
S&P 500 |
-90.65 |
1.50% |
6,010 |
Nasdaq |
-475.39 |
2.41% |
19,475 |
Russell 2000 |
-3.33 |
0.15% |
2,304 |
U.S. stock markets tumble as today’s focus is all on technology and the outlook for the U.S. AI industry as the rapid rise of DeepSeek, a Chinese AI startup rattled markets. The Low-cost Chinese artificial intelligence (AI) model sparked a selloff in semi-chipmakers (NVDA, ARM, AVGO), AI server makers (VRT, DELL, SMCI), Power companies (CEG, OKLO, VST, NRG), which are expected to see a surge in demand from energy-intensive data centers needed to develop AI technology as well as other AI top tech players (META, GOOGL, MSFT). DeepSeek said its large language models have demonstrated performance comparable to leading US AI systems like OpenAI and Google, despite US export restrictions on advanced chips. DeepSeek claims its latest model was trained at a fraction of the cost of US counterparts, raising questions about the computing power required for AI development, and high valuations for tech companies. DeepSeek’s AI Assistant on Monday overtook rival ChatGPT to become the top-rated free app available on Apple’s App Store in the U.S. Not today’s stock market flush comes ahead of the FOMC policy meeting and PCE data later this week! A few stand outs avoiding the broader tech sell off included small caps (IWM) and defensive sectors (Healthcare, REITs and Consumer Staples) as Treasury prices rise, sending yields lower. Food stocks outperform (CAG, CPB, GIS) along with housing stocks (LEN, KBH, TOL) as rates fall. The 10-yr yield slid as much as 12 bps to 4.5% before paring losses as bonds rally after stock rout fueling safe haven bids, lowest levels since January 2nd. After today’s tech sell-off, investors await the FOMC policy meeting mid-week, ECB policy meeting, key inflation data (PCE on Friday) and big earnings (AAPL, META, MSFT, TSLA this week).
Economic Data
- December New Home Sales rise 3.6% to 0.698M unit annual rate, above consensus 0.675M as Dec single-family home sales +3.6% with the Northeast +41.7%, Midwest -3.3%, South -2.1%, West +20.3%; new home supply 8.5 months’ worth at current pace vs Nov 8.7 months; median sale price $427,000, +2.1% from Dec 2023 ($418,300).
Macro |
Up/Down |
Last |
WTI Crude |
-1.00 |
73.66 |
Brent |
-0.39 |
78.11 |
Gold |
-35.10 |
2,743.80 |
EUR/USD |
0.0006 |
1.05 |
JPY/USD |
-1.39 |
154.60 |
10-Year Note |
-0.064 |
4.562% |
Sector Movers Today
- Almost anything AI related seeing weakness today on the headlines noting the rapid rise of DeepSeek, a Chinese AI startup rattled markets. Everything from semiconductors (NVDA, ARM, AVGO, SMCI), data centers (DLR, EQIX, VRT, DELL), nuclear plays (CEG, VST, TLN, OKLO, SMR, NRG) all getting hit hard on the AI story.
- In Restaurants: BLMN was downgraded from Neutral to Underperform at Bank America noting over the past 10 years, Bloomin’s transaction growth has declined -~2% annually on average for its brands, including a -1.1% traffic CAGR at its largest brand, Outback (Outback US accounted for ~51% of Bloomin (BLMN) revenue in F24; after the Brazil licensing BAML estimate that will increase to ~53%). PTLO was upgraded from Hold to Buy at Stifel and raised tgt from $13 to $16 after a recent meeting with management noting the company has intensified efforts to address weak traffic trends while indicating a willingness to promote value more aggressively if needed.
- In Homebuilders: the sector outperformed (LEN, TOL, BZH, KBH) as mortgage rates slid along with Treasury yields. DHI was downgraded from Buy to Neutral at Bank America (tgt to $150 from $160) saying housing demand has moderated with higher rates and input costs are rising and the firm believes DHI is prudently adjusting to a more challenging backdrop, but it expects margin headwinds to persist through F2025. SDHC was also downgraded at Bank America, cutting from Neutral to Underperform (tgt to $22 from $33). PHM was downgraded to Sell from Neutral in the homebuilding sector at Seaport Global.
- In Software: RNG downgraded from Overweight to Equal Weight at Barclay’s and lower tgt to $37 from $45 on possible underperformance as believes there is less upside to 2025 Street numbers as RNG’s collaboration market would be a lower priority add in an improving macro and since RNG faces stronger Zoom/Teams competition. TTWO was upgraded to Buy from Neutral at UBS and raised tgt to $230 from $175 saying with increased conviction in GTA VI demand and a robust lineup of other titles, the firm expects bookings, profits and FCF to inflect over the next two yrs, lowering leverage and freeing capital for accretive investments. TWLO upgraded to Buy at Goldman Sachs and raised tgt to $185 from $77 as sees an inflection point in their business given cost reduction initiatives and ongoing efficiency measures which support strong FCF generation ahead of FQ4 results (2/13).
Stock GAINERS
- AKRO +113%; after reported prelim results from mid-stage trial testing its lead experimental drug to treat liver scarring caused by metabolic dysfunction-associated steatohepatitis (MASH) saying 39% of patients treated with drug efruxifermin showed reversal of liver scarring with no worsening of MASH, compared to 15% for placebo
- AZPN +3%; as EMR said it will acquire all outstanding shares of AZPN it does not already own for $265 per share in an all-cash tender offer valuing AZPN at $16.8B (Emerson currently owns about 57% stake in AZPN).
- ETNB +50%; shares rally behind AKRO drug data as Cantor noted Akero announced its prelim topline 96-week data from Phase 2B study of efruxifermin in F4 MASH. These data have important read to ETNB given the company is also evaluating an FGF21 analog, pegozafermin in F4 MASH. Thus, data provides a clearer picture for mkt potential
- LGTY +24%; after signing a buyout deal with Aptean, a privately owned provider of enterprise software solutions as LGTY shareholders will receive $14.30 per share, representing a 27% premium to its Jan. 23 closing price.
- PTLO +7%; was upgraded from Hold to Buy at Stifel and raised tgt from $13 to $16 after a recent meeting with management noting the company has intensified efforts to address weak traffic trends while indicating a willingness to promote value more aggressively if needed.
- QRVO +1%; upgraded to Overweight from Neutral at Piper and raised tgt to $110 from $85 based on the potential for improving fundamentals given Starboard’s involvement in the company. In the firms view, QRVO’s current setup is ripe for this activist to come in and derive operational and capital efficiencies.
- T +4%; AT posted Q4 results that topped Wall Street projections, including better-than expected increases in mobile-phone customers and fiber-based internet subscribers (added 482,000 net monthly bill-paying wireless phone subscribers in the holiday quarter, outpacing analysts’ estimated gains of 424,550).
Stock LAGGARDS
- ALLK -71%; after saying it decided to discontinue further clinical development of AK006 after the experimental drug did not show clinical benefit in an early-stage trial testing it in patients with chronic spontaneous urticaria.
- COIN -4%; as the emergence of a new Chinese artificial intelligence model triggered a global selloff in riskier assets and pressured shares of crypto stocks as Bitcoin prices fell; WULF, RIOT, CORZ etc.
- MDGL -9%: falling in reaction to positive competing AKRO drug data in MASH.
- NVDA -11%; as AI stocks slump amid concern that AI models from Chinese firm DeepSeek could disrupt US technological leadership and raised questions about high valuations of companies (AVGO, ARM, ANET, etc.)
- SOFI -9%; reported better Q4 results while guidance was mixed for the next quarter.
- X -1%; after activist investor Ancora Holdings Group has nominated nine candidates for the company’s board and is pushing for US Steel to abandon a takeover by Nippon Steel Corp.
Market commentary provided by Hammerstone Markets, Inc, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.