Mid-Morning Look

Monday, March 31, 2025

U.S. stocks extend recent decline as the S&P 500 index falls to 6-month lows, no bounce the last 4-days as stocks stumble with the S&P 500 (SPX) breaking below 5,500 this morning, down over 5% YTD and -7.25% on the final day of the quarter. Overnight S&P futures (Spuz) dropped below the March YTD low from 3/13 of 5559.75, hitting lows of 5,533.75 before paring losses. The Russell 2000 index touches lowest since May 2024, last down -1.6% and back below 2,000. New day, same market concerns with unknown impact of tariffs that go into effect globally on Wednesday, raising recession fears and stagflation fears. Several sectors feeling the pain of the Trump administration policy changes, while defensive and haven assets rallying today (gold, utilities, consumer staples).

Biotech (XBI, IBB) is tumbling in the broad market sell-off following news of a key departure this weekend at the FDA. Dr. Peter Marks, the Director of the Center for Biologics Evaluation and Research (CBER) at the FDA was seen as a negative surprise to Wall Street. Shares of vaccine makers (MRNA, BNTX, NVAX) as week as other gene-therapy companies SRPT, SLDB, others are also weaker. Reports indicate that Marks criticized Kennedy’s views on vaccines in a letter obtained by the Wall Street Journal.

Ongoing weakness in shares of companies connected to artificial intelligence (AI) are falling again (big losers the last few weeks) as investors increasingly question the outlook for the sector, which has been a central driver of overall market gains prior. Shares of NVDA, ARM, AVGO in chips, SMCI, VRT, DELL, ETN in data center, GOOGL, MSFT also weaker along with power companies (VST, OKLO, SMR, LEU) as demand needs soften.

Travel and consumer related stocks were broadly lower following global stock pressure amid intensifying worries about the impact of US tariffs. The uncertainty is seen as weighing on consumers, and travel & leisure stocks are getting hit Monday with airlines (AAL, DAL, UAL0, cruise lines (CCL, NCLH, RCL), online travel/lodging (ABNB, EXCPE, BKNG) all tumbling early, as Virgin Atlantic the latest to flag slowing US demand.

Defense and haven related assets rallying this morning, adding to last week’s gains as gold prices soared as risk mood soured on renewed concern over US tariffs, both on news reports that Wednesday’s new tariffs could be broader and higher than previously thought and as Goldman Sachs cut its US growth forecasts. Goldman Sachs Group Inc.’s David Kostin cuts their S&P 500 target for a second time this month as the strategist now expects the benchmark to end the year around 5,700 points versus his previous estimate of 6,200, citing a higher recession risk and tariff-related uncertainty. Defensive food/consumer product stocks (GIS, PG, KMB, KO, etc.) among early leaders in the S&P 500.

• In China, the official PMI survey for March slightly exceeded market expectations as manufacturing PMI increased to 50.5, compared to the estimated 50.4 and the previous figure of 50.2. Meanwhile, the non-manufacturing index rose to 50.8, surpassing the estimate of 50.6 and the prior reading of 50.4. This marks the second consecutive improvement for the manufacturing index.
• Japan’s industrial production rebounded in February, marking its fastest monthly gain in nearly a year, as manufacturers ramped up output ahead of new U.S. tariffs on autos and auto parts. Industrial production rose 2.5% MoM (est. 2.0%, prev. -1.1%), but missed expectations YoY at 0.3% (est. 1.2%, prev. 2.2%).

• In Banks: CMA was downgraded to Equal Weight from Overweight at Stephens saying the regional bank has outperformed peers in Q1, reflecting optimism that bank M&A activity is set to accelerate; PNC was upgraded to Buy from Hold at HSBC noting shares are down 19% from their late November 2024 highs, creating an attractive entry point to add exposure to a “high quality banking institution with proven discipline around risk and capital allocation; FBK and SSBK enter into a definitive merger agreement pursuant to which Southern States will be merged with and into FB Financial.
• In Metals & Mining: in the Steel sector, U.S. Steel (X) was downgraded to Market Perform from Outperform at BMO Capital saying the current share price nearing fair fundamental value while upgraded STLD to Outperform saying the company’s product portfolio is relatively well-positioned to benefit from President Donald Trump’s expanded tariffs. Gold and silver miners (AEM, NEM, GFI, GOLD, PAAS) continue uptrend following surge in gold prices to new all-time highs. AEM was downgraded to neutral at UBS following outperformance, though remain constructive on the outlook for gold and in our view the role of gold/gold equities as a diversifier in portfolios remains compelling.
• In Crypto: HUT shares outperformed in Bitcoin miners on news it has teamed up with Eric Trump to form American Bitcoin with a focus on mining and building bitcoin reserves. The co says it merged the majority of its mining operations for an 80% stake in American Data Centers, backed by investors including Eric Trump and Donald Trump Jr., rebranded as American Bitcoin. MSTR acquired an additional 22,048 BTC for approximately $1.92B at an average price of $86,969 per bitcoin between March 24 and March 30, according to an 8-K filing with the SEC; MARA files to offer up to $2 billion in common stock.

• COOP +16%; RKT announced a definitive agreement to acquire COOP in an all-stock transaction for $9.4B in equity value, where under the terms of the agreement, Mr. Cooper shareholders will receive a fixed exchange ratio of 11.0 Rocket shares for each share of Mr. Cooper common stock valued at $143.33.
• CORT +84%; said it received positive data from its phase 3 ovarian cancer treatment trial relacorilant in conjunction with the chemotherapy drug nab-paclitaxel; it met the primary endpoint of the Rosella trials, showing improved progression-free survival in patients with platinum-resistant ovarian cancer.
• DFS +5%; The Dept. of Justice is considering approving COF’s planned $35.3B purchase of DFS as the regulator believes it may not be able to block the deal in a court based on issues with subprime lenders. The deal spread narrowed to $13.92 from $18.84 on Friday.  https://tinyurl.com/48wk28y6
• FANG +2%; along with gains in oil companies (COP, DVN, EOG) as oil prices rise above $70 per barrel.
• SSBK +10%; FBK and SSBK enter into a definitive merger agreement pursuant to which Southern States will be merged with and into FB Financial.

• GOOS -5%; was downgraded to Underweight at Barclays based on 1) global macro pressure; 2) increasing competitive pressure; 3) potential impact of tariff exposure; and 4) increased operational risk due to a blend of high seasonality, growing DTC mix, and product expansion into non-core categories.
• MRNA -12%; along with weakness in vaccine makers BNTX, NVAX, PCVX after news Friday evening that Peter Marks resigned from his leadership post at FDA, with a resignation letter that calls out direct disagreement with RFK Jr related to vaccines
• SRPT -7%; RBC Capital downgraded to Sector Perform from Outperform (PT to $87 from $161) saying they are incrementally less bullish on Elevidys’ opportunity following recent physician checks.
• TSLA -5%; amid weakness in autos on tariffs and ahead of monthly EV delivery data this week.
• UAL -6%; along with weakness in other airlines (AAL, DAL) and online travel (EXPE, BKNG, ABNB) on slowing consumer growth/spending concerns; comments by Virgin Atlantic about demand.