Mid-Morning Look

Thursday, May 22, 2025

U.S. stocks are mixed, taking cues from the bond market this morning as equity prices sunk initially when Treasury yields spiked to highs, but have rebounded since as yields have eased. The benchmark 10-year yield hit highs around 4.63% this morning before paring gains to 4.585%, while the 30-year yield climbed to 5.15%, its highest since October 2023 as market fears grow about President Trump tax bill plan which is expected to add to the growing debt fears of the U.S. (which followed a recent credit downgrade by Moody’s for the US). This morning, the Republican-controlled U.S. House of Representatives narrowly passed a sweeping tax and spending bill that would enact much of President Trump’s policy agenda, fulfilling many of his campaign pledges, delivering new tax breaks on tips and car loans and boosting spending on the military and border enforcement. It will add about $3.8 trillion to the federal government’s $36.2 trillion in debt over the next decade, according to the nonpartisan Congressional Budget Office. The package must also win approval in the Republican-controlled Senate before Trump can sign it into law. Oil prices dropped by more than 1% after a report that OPEC+ is discussing a production increase for July, stoking concerns that global supply could exceed demand growth. In Stocks news, AAP, RAMP, SNOW, URBN big winners following earnings; solar stocks tumble (RUN, ENPH, SEDG) due to concerns over a proposed U.S. House bill that could accelerate the phase-out of the 30% residential solar tax credit by years end; managed care names weak (HUM) after CMS launches an expanded Medicare Advantage (MA) audit strategy; GSE’s (FNMA, FMCC) rally after President Donald Trump said he was considering taking the U.S. mortgage finance firms public. Bitcoin hits record highs, gold slips.

• The Chicago Fed National Activity Index for April sinks to -0.25, the worst since October and also the worst sequential chance since November 2022.
• S&P Global May flash composite PMI at 52.1 (vs 50.6 in April), S&P Global May flash services PMI at 52.3 (vs 50.8 in April) and S&P Global May flash manufacturing PMI at 52.3 (vs 50.2 in April).
• April Existing Home Sales 4.00M unit rate fell -0.5% (slightly below consensus 4.10M), and vs March 4.02M (prev 4.02M); April inventory of homes for sale 1.45M units, 4.4 months’ worth; April national median home price for existing homes $414,000, +1.8% from April 2024.

• Managed Care stocks weak (UNH, CVS, HUM), after CMS launches an expanded Medicare Advantage (MA) audit strategy. CMS announced plans to aggressively increase Medicare Advantage risk adjustment coding audits (aka RADV audits), and it intends to complete audits for payment years 2018-2024 by early 2026. CMS intends to deploy advanced technology to review medical records more efficiently and will increase its medical coders staff to 2,000 (up from 40). CMS also expects to increase its audit volume to include all ~550 MA plans each year (vs. 60 previously) and will review 35-200 records per plan per year (vs. 35 previously).
• In MedTech: Citigroup with several changes as they reiterate BSX as top pick, while adding EW to top picks list (and removing PODD), downgrading BDX to Neutral from Buy; upgrading ITGR to Buy from Neutral; closing its Negative Catalyst Watch on HAE, maintaining the Positive Catalyst Watch on COO. The good news is that underlying MedTech fundamentals appear intact after tariff impact, including volumes, pricing, and CAPEX. Separately, INGN was upgraded from Hold to Buy at Needham with $12 tgt as it believes that the new management team has made significant progress with a turnaround and this is not reflected in its share price.
• In Semiconductors: ADI gives a boost to analog semis after results as Q2 earnings and revenue topped analysts’ expectations; MRVL was downgraded to Hold from Buy at Melius as expected Marvell to do well due to its custom silicon business but now thinks this may not happen flagging concerns about Marvell’s role in AMZN and MSFT’s custom accelerator projects, and potential competition from other companies. NVTS shares surged after NVDA said it will collaborate with Navitas Semiconductor on its next generation 800V HVDC architecture (no terms were disclosed); SYNA announced that its board of directors has appointed Rahul Patel as chief executive officer. He succeeds Interim CEO Ken Rizvi, who will continue to serve as CFO. Most recently, Mr. Patel served as senior vice president and group general manager of QCOM’s Connectivity, Broadband, & Networking Group. STX board approves $5 bln share repurchase program.

• FNMA +27% and FMCC +27%; after President Donald Trump said he was considering taking the U.S. mortgage finance firms public. The United States Treasury owns preferred shares in the firms and warrants to purchase about 80% of their common stock, a holdover from a rescue during the 2008 housing loan crisis.
• GOOGL +4%; extending recent gains after its developer conference this week.
• LUMN +7%; after AT agreed to buy the company’s consumer fiber operations for $5.75 billion; The deal is expected to close in the first half of 2026 and will result in AT&T acquiring ~1M fiber customers and ~4M fiber passings across 11 states.
• NKE +1%; said it plans to sell products on AMZN’s U.S. site for the first time in more than five years. Nike stopped selling to Amazon directly in November 2019 to focus on its direct business.
• NVTS +121%; after NVDA said it will collaborate with Navitas Semiconductor on its next generation 800V HVDC architecture (no terms were disclosed).
• SNOW +9%; strong Q1 EPS/revs beat and raised guidance for the full year, lifting shares with highlights for the quarter including Healthy CRPO growth (27%), as increase in the guidance for FY26, no indications of an increase in macro concerns, product revs of $997M beating consensus $959M and was up 5% q/q and 26% y/y.
• URBN +19%; reported better Q1 EPS driven by a beat across line-items, including +5% same-store-sales growth (above Street +3.4%), adj. gross margin expansion of +240bps Y/Y to 36.8% (> Street 35.4%), while the comp sales growth included positive comp growth across all three banners, led by Anthropologie comps +6.9%, Free People comps +3.1% and UO brand all topping ests
• VIGL +241%; after SNY agreed to acquire them for $8 per share in total deal valued at $470M (Vigil shareholders would also be eligible for a contingent value right (CVR) of $2 per share.

• ENS -16%; beat Q4 top/bottom line consensus estimates with strong operating performance while guiding F1Q26 sales/EPS below the Street estimate and pausing FY guidance.
• HIMS -7%; following CI’s Evernorth division’s new benefit option to lower the cost of weight loss medicines to no more than $200 per month.
• HUM -3%; along with weakness as well for UNH, CVS, CNC, ALHC after CMS announced plans to aggressively increase Medicare Advantage risk adjustment coding audits (aka RADV audits), and it intends to complete audits for payment years 2018-2024 by early 2026
• RUN -35%; along with weakness in the whole solar complex (FSLR, ENPH, SEDG, ARRY) primarily due to concerns over a proposed U.S. House bill that could accelerate the phase-out of the 30% residential solar tax credit by years end, much earlier than the original 2034 timeline set by the Inflation Reduction Act (IRA).
• SOC -4%; after prices public offering of 8.7M shares at $29.50 each.
• WSM -12%; Q1 earnings and revs topped consensus as Comparable brand revenue came in at 3.4% growth, but only reiterated prior forecast of revenue to be in the range of a decline of 1.5% to growth of 1.5% in fiscal 2025
• ZM -3%; Q1 EPS beat just below 1% (on slightly better revs) and raised the full-year guidance by $5MM more than the beat but emphasized the FY raise was not a read through of the beat, but rather the expected benefit from a $1/month pricing increase for their month-to-month Online Pro customers.