Closing Recap

Wednesday, March 19, 2025

U.S. stocks were higher heading into the FOMC policy meeting, got a slight pop after the meeting text was released at 2:00 pm et, and then proceeded to push higher as Fed Chairman Powell spoke as investors liked what they heard from his press conference commentary. While stocks topped Monday highs, prices dropped back below, paring gains in the final hour of trading. Fed Chairman Jerome Powell noted the heightened uncertainty near-term from consumers and that inflation was somewhat elevated with job conditions are still solid. He noted tariffs are driving inflation expectations higher and that the Fed will continue to parse the data and developments in policy ahead. Powell said it will be difficult to assess tariff inflation, but noted the base case is that inflation from tariffs will be “transitory”. Powell pointed to his comments the other day comparing actual hard data vs sentiment data. Powell said he was not dismissing the rise in short-term inflation expectations, but there’s no story of an increase in long-term expectations. The Fed also kept their median outlook of two-rate cuts in 2025 which investors liked.

While Fed officials marked down their forecasts for GDP and raised their forecasts of inflation and unemployment, almost all of them noted they see the risks to the downside on growth and almost all of them see the risks to their unemployment and inflation forecasts to the upside. In the Fed statement, they cut 2025 GDP growth projection from 2.1% to 1.7%, raised their unemployment forecast from 4.3% to 4.4%, raised the PCE inflation forecast from 2.5% to 2.7% and raised their core PCE inflation forecast from 2.5% to 2.8%. Still despite possible stagflation concerns as the Fed sees higher inflation and an economy growing by less than 2% this year, markets still managed to hold up well as investors took it that the Fed will focus more on growth vs inflation. The Fed meeting dominated today’s afternoon market action, with ten of eleven S&P sectors finishing higher on good market breadth (3:1 advancers led).

• Taking stock of the Trump administration’s rollout of tariffs, Fed officials actually marked up their outlook for inflation this year, with their preferred measure of price increases expected to end the year at 2.7% versus the 2.5% pace anticipated in December.
• But they also marked down the outlook for economic growth for this year from 2.1% to 1.7%, with slightly higher unemployment by the end of this year. Policymakers said risks had increased, with a near unanimous sentiment in saying the outlook for the year was muddled.
• The median of the rate cut forecasts are unchanged from December (still at a two-cut median). Breakdown of Fed projections show 4 of 19 officials see no cuts in 2025, 4 see one cut, 9 see 2 cuts, 2 see 3 cuts.
• The Fed also said it will slow the ongoing drawdown of its balance sheet, known as quantitative tightening, starting next month; the Fed slows Treasury runoff (QT) to $5 billion per month (from $25B) as Fed’s Chris Waller dissents on the QT reduction, preferring the current pace.

• In Restaurants: CMG price tgt trimmed to $65 from $68 at Stifel saying while continues to expect the recently launched Chipotle Honey Chicken will be a strong product, it believes there are a handful of factors contributing to a difficult lap over the remainder of Q1, resulting in a softer comp performance than previously projected; QSR was upgraded to Buy from Hold at Argus with an $80 price target saying sees significant room to grow its brands globally and thinks shares can move higher.
• In the Food sector: GIS shares declined on mixed Q3 results (EPS beat, but sales fell -5% y/y to $4.84B vs. est. $4.97B) on weaker organic sales of (-5%) and lowers FY25 organic sales outlook to down (-1.5%-2%), below prior view of FY25 Organic Sales at lower end of flat to up 1%; also forecasts FY adj. EPS constant FX -7% to -8%, below prior forecast -1% to -3%.

• In Home Furnishing: WSM shares slumped as posted higher-than-expected Q4 results, aided by an extra week in the fiscal year and improved demand despite broader concerns about the economy (revs $2.46B vs. est. $2.35B) on better EPS, while saying see FY25 revenue to be in the range of a decline of 1.5% to growth of 1.5% due to the impact of one less week compared to the prior fiscal year.

• In the Towables/RV sector: THO was downgraded to Neutral from Buy at Citigroup and lower tgt to $86 from $94 citing interest rate and macroeconomic uncertainty for the downgrade noting a soft landing seems less likely with every passing day. The firm also lowered its price tgt on WGO to $43 from $51 citing reduced confidence in a recreational vehicle industry recovery amid heightened macroeconomic concerns.
• In Autos: TSLA upgraded Overweight with $425 PT at Cantor after visiting Tesla’s Cortex AI data centers and the factory’s production lines ahead of the company’s introduction of its Robotaxi segment (targeted for June in Austin followed by CA later in 2025). With Tesla’s shares now down ~45% YTD, Cantor upgrades ahead of upcoming material catalysts; its $425 12-month PT is unchanged. Hyundai Motor India will increase car prices by up to 3% from April 2025, owing to rising raw material and operational costs, it said on Wednesday. Auto dealers CVNA, KMX shares slipped initially after Auto News reported AMZN eyes used-car sales.

• In Chemicals: Fertilizer company MOS was upgraded to Overweight and raised tgt to $33 at Barclay’s after the company hosted an investor day on Tuesday, 3/18, outlining capital reallocation and growth plans as well as the guide to more normalized production costs and increased market access.
• In Paper & Packaging: Truist noted GEF announces a $50-70/ton price increase on all grades of URB effective April 21 due to increasing manufacturing costs. The firm views this announcement as positive for GEF and SON.
• E&C Sector: B Riley transfers coverage as downgraded PWR to Neutral from Buy (PT to $300 from $343) and maintain Buys on MTZ (PT to $165 from $151) BWMN (PT $40), TPC ($40 PT) and ORN ($9 PT) saying near term, the firm expects several underlying drivers to create positive momentum in the sector, including rapidly increasing demand for high-powered AI data centers, funding from federal and state infrastructure programs reaching the construction stage, and the ongoing energy transition from traditional fossil fuels to renewables.

• In Payments: AFRM was upgraded to Buy with $64 PT at Compass Point saying the WMT related selloff is overdone, compounding growth & operating leverage and raised its tgt to $64 from $61 based on 3x FY27E tangible book value per share of $21.24.

• GILD shares slipped after the U.S. health department is reviewing CDC’s HIV prevention division for potential overlap with other agencies and might be at risk of a shut down.
• IMVT shares volatile (alongside partner ROIV) after their rare disease drug succeeded in a final-phase study, but the duo won’t seek regulatory approval for it; provided data from a Phase 3 study of batoclimab in an autoimmune disorder called myasthenia gravis.

• In Managed Care: UNH’s pharmacy benefit manager, Optum Rx, will eliminate up to 25% of the annual reauthorization requirements for certain drugs, lowering the need of prior authorizations required before patients can access the drugs, the company said on Wednesday.
• In Lab companies: DGX said it expects headwind to revenue of about $25M and to EPS of about $0.10 in Q1due to worse-than-anticipated weather; Quest has 2,250 PSCs across the US where people can get blood tests and other medical samples collected; shares of rival lab Co LH fell as well early.

• In China tech: TCEHY said it would boost capital expenditure in 2025 to $10.7B from $3.4B y/y, as it doubles down on artificial intelligence development and infrastructure; Q4 revs of 172.4B yuan ($23.83B) were up 11% y/y and above ests 168.9B yuan; Q4 net profit was 51.3B yuan, topped ests of 46.3B yuan.
• In Semiconductors: INTC shares slipped after 5-straght day of gains after Digitimes reported TSM board member Paul Liu dismisses Intel foundry takeover rumors, calls them unfounded; denied speculation the company is considering acquiring Intel’s struggling foundry business.
• Back-office enterprise software: Stephens initiated coverage with Overweight on WK ($111 PT) and OS ($27 PT) and equal weigh ratings on TEAM ($255 PT) and ORCL ($167 PT). For OS, best grower + SAP driven sun-setting + increasing buyer awareness should drive sustainable growth, even in a tough macro. For WK, think too-negative ESG sentiment keeping multiple too low + platform sell + LT 20% growth guide should drive multiple expansion. For TEAM, like ESM share taking + cloud migration + "wall-to-wall" seat growth oppty, but awaiting better entry point and for ORCL like multi-cloud database + hyperscaler + AI + strategic SaaS growth oppty.
• Front Office Enterprise software: Stephens initiated BRZE ($43 PT), HUBS ($769 PT) and KVYO ($43 PT) at Overweight in front office enterprise-software space and equal weight on CRM ($311 PT). For BRZE, thinks it is too cheap (5.3x EV/FY2 revenue) given it will soon lap tough ZIRP-era contracts and as gets more big new win chances as CRM re-platforms its Marketing Cloud. For HUBS, like position as potential "CRM for SMB/MID market," resilient NRR recently, and lower valuation recently (9.0x EV/FY2 revenue). For KVYO, best grower in group, compelling value proposition measured by KAV metric, and valuation has come in lately (7.0x EV/FY2 revenue). For CRM, like peer-leading AI monetization, digital labor product, and market share, but priced in.