Mid-Morning Look

Friday, February 07, 2025

Stock markets volatile early as initial market strength this morning saw a speed bump around 10:00 am after the University of Michigan consumer survey showed year-ahead inflation expectations jumped up from 3.3% last month to 4.3% this month, the highest reading since November 2023 and marking two consecutive months of unusually large increases. The headlines weighed on markets as stocks turned lower but has already bounced off the lows. Prior to the data, U.S. stocks remained strong as the S&P 500 (SPX) looks to rally a 4^th straight day, topping 6,100 this morning and approaching its all-time highs of 6,128.18 as investors continue to pile into stock markets globally. Despite higher Treasury yields, a further push out of Fed rate cuts into 2025 after strong jobs data this morning (see below), and tariff/trade partner uncertainty out of Washington DC, nothing has swayed investors from snapping up stocks as the market momentum remains clear to the upside. META is on track for its 15^th straight day of gains after strong results last week, financials (XLF) hit all-time highs and remains the top sector performer in the S&P this year; Bitcoin is back above $100,000, gold prices making new highs rising above $2,900 an ounce and all Eleven S&P sectors are higher in 2025.

U.S. job growth slowed more than expected in January (143 vs 170K), likely restrained by wildfires in California and cold weather across much of the country, but revisions for the prior two months was to the upside (by +100K), and a lower 4.0% unemployment rate (down from 4.1%) probably pushes out Fed rate cuts further. Average hourly earnings rose 0.5% after gaining 0.3% in December. Wages increased 4.1% in the 12 months through January after advancing 4.1% in December. U.S. Treasury yields rose (10-yr to 4.49% from 4.43%) after data showed that employers added fewer jobs than expected in January, while wage inflation beat economists’ expectations.

• January unemployment rate slipped to 4.0% from 4.1% prior while average hourly earnings rise +4.1% from year earlier (above est. +3.8%) and on a M/m average hourly earnings rose +0.5% from prior month (above est. +0.3%).
• University of Michigan surveys of consumers 1-year inflation outlook prelim Feb 4.3% vs final Jan 3.3% and the University of Michigan surveys of consumers 5-year inflation outlook prelim Feb 3.3% vs final Jan 3.2%.
• University of Michigan surveys of consumers sentiment prelim Feb 67.8 (consensus 71.1) vs final Jan 71.1; the current conditions index prelim Feb 68.7 (consensus 73.0) vs final Jan 74.0; University of Michigan surveys of consumers expectations index prelim Feb 67.3 (consensus 70.0) vs final Jan 69.3.
• U.S. wholesale inventories fell in December amid strong sales growth. Inventories, a key part of gross domestic product, fell 0.1% on a year-on-year basis in December. Private inventory investment was a big drag on GDP in the fourth quarter, restricting economic growth to a 2.3% annualized rate. The economy grew at a 3.1% pace in the July-September quarter. Sales at wholesalers increased 1.0% in December after rising 0.9% in November.

• In Semis: MPWR reported strong Q4 results and Q1 guidance, which both exceeded expectations, mostly driven by Auto, which exceeded expectations by ~15%, while guidance reflects strength in Auto, Memory, PCs, and Comms. Enterprise Data is expected to be down q/q in Q1 and flat for 2025 with growth expected to be 2H weighted. MCHP reported FQ3 results, which were consistent with its negative pre on Dec 2, and guided FQ4 lower as the company indicated demand was particularly weak across auto and industrials and noted that customer inventories remain high mostly at direct customers, whereas disty inventory is getting closer to normalizing. SYNA posted strong F2Q results and F3Q guidance, which were above expectations saying they continue to see a broader-based recovery continuing in core IoT and expanding somewhat into Enterprise & Auto.
• In REITs: CPT reported a 4Q24 Core FFO beat, driven by the Company’s fourth consecutive quarter of lower-than expected same-store operating expense growth (+1.8% in 2024, or 270 bps below initial projections). Initial 2025 Core FFO guidance missed expectations by 0.7% at the midpoint. CUZ reported 4Q24 FFO of $0.69, which was ahead of consensus ($0.67); mgmt introduced FY25 FFO guidance of $2.73-$2.83, which is 1.5% ahead of consensus ($2.74) and represents y/y growth of 3.3% at the midpoint. EGP reported in-line 4Q FFO of $2.15/share, highlighted by a 250-bps moderation in cash SPNOI growth (to 3.4% from 5.9% in 3Q) and a 40-bps sequential decrease in occupancy. PECO reported Q4 Core FFO of $0.62, which is in line with consensus and mgmt affirmed its FY25 Core FFO guidance of $2.52-$2.59/share, which is relatively in line with consensus of $2.55 at the midpoint. REG reported a strong 4Q beat and better than expected 2025 outlook; NAREIT FFO of $1.09 topped consensus by $0.02/share and mgmt issued initial FY25 FFO guidance of $4.52-$4.58.

• DOCS +32%; as reported a large top- and bottom-line beat marked by revenues that grew 25% y/y (~10% above consensus) at 60.5% adj. EBITDA margins (topping consensus by ~23%) and raised its FY guidance both on the top and bottom lines with healthy ~13% growth targeted for F4Q.
• EXPE +15%; shares jumped on Q4 results as posted better-than-expected gross bookings in the final months of 2024, reflecting resilient demand for travel during the winter holiday season; Q4 adj EPS $2.39 vs est. $2.04, adj EBITDA $643Mm vs est. $570.9Mm on revs $3.184B vs est. $3.07B.
• LEU +31%; after results by the nuclear power company showed EPS of $3.20 per share topping analyst consensus estimate of $1.25 and sales of $151.60M vs analyst consensus estimate of $106.67M; shares of OKLO, SMR and other nuclear power related names rising in sympathy.
• MPWR +6%; reported strong Q4 results and Q1 guidance, which both exceeded expectations, mostly driven by Auto, which exceeded expectations by ~15%, while guidance reflects strength in Auto, Memory, PCs, and Comms.
• NET +15%; reported an impressive quarter, as the company added a record number of Paying Customers, where yr-yr growth accelerated for the fourth consecutive quarter; and greater than 50% of Cloudflare’s $1M-plus New Logos in CY24 were added during the December quarter.
• PINS +20%; shares soared after Q4 results and Q1 guidance were stronger than expected, reflecting solid MAU growth and product initiatives gaining traction.
• TTWO +13%; reiterated its plan to launch the highly anticipated Grand Theft Auto VI in fall 2025; management expressed optimism around the ability to scale IP in the coming years; guides Q4 revs $1.52-1.62B vs est. $1.538B and adj EBITDA $223-277Mm vs est. $327.92Mm.

• APD -4%; was downgraded to Neutral from Overweight at JP Morgan as thinks there are risks to the APD earnings growth rate from the flattening out of industrial gas prices as well as from negative currency effects.
• BILL -32%; shares tumbled over 20% as AP/AR TPV did accelerate, customer net adds were better than thought, and product velocity seems to be improving – but Keybanc noted little to none of that matters for the stock when combined with a sequential deterioration in take rate across AP/AR and Spend & Expense (take rate miss was primarily attributed to FX loss related to currency volatility and mix).
• ELF -18%; following mixed Q3 results, as lowered fiscal-year projections for sales and profits, citing softer-than-anticipated January trends; guides FY25 adj EPS outlook to $3.27-$3.32 from $3.47-$3.53 and lower FY25 sales outlook to $1.3B-$1.31B from $1.315B-$1.335B.
• NBIX -11%; reported Q4 results with a conservative guidance view and lowers its FY25 Ingrezza sales estimate to $2.58B, which translates to lower growth than investors expected, and higher operating expense numbers based on investments on the commercial and R&D side.
• NKLA -38%; after the WSJ reported last night the company nears bankruptcy filing https://tinyurl.com/mw67j2j5