Mid-Morning Look

Friday, March 21, 2025

U.S. stocks posting a sharp decline on the open, as S&P futures fail to bounce at all, near the weekly low (SPX held just above 5,600) as major averages remain on pace for their 5^th straight weekly decline. US futures were down overnight following a batch of downbeat corporate earnings/guidance from Fed-Ex (FDX) in package delivery and softer guidance from Nike (NKE) in retail fanning fresh concerns about slowing consumer spending in a market that’s already grappling with the prospect of a damaging US trade war. Homebuilders also weakened after Lennar (LEN) reported better results but a cautious outlook. Even tech got hit led by semiconductors as Micron (MU) reported better results for the quarter and guide, but weaker margins reversed share gains overnight as the stock slid. After a solid 1H od quarterly earnings, recent results have pressured stock markets with softness in retail, transport, software, homebuilders and food related names among them. Market uncertainty related to tariffs, trade deals, geopolitical concerns, slowing consumer spending and slower US growth have plagued market sentiment since the S&P made all-time highs about a month ago, and ahead of reciprocal tariffs in April, which no bounce in sight. NYSE breadth more than 4:1 decliners leading advancers as all eleven S&P sectors firmly in the “red.”

Futures selling pressure accelerated following comments from Chicago Fed president Austan Goolsbee, saying in a CNBC interview that it remains an open question for the U.S. Federal Reserve whether the Trump administration’s tariff plans will lead to persistent inflation, with taxes on intermediate goods, retaliation by other nations, and other factors feeding into whether the central bank will have to react. “If they apply to intermediate goods, how much of the cost increases are going to be passed through to consumers? How much do executives think consumers will bear?…That is the fundamental question,” Goolsbee said on CNBC, adding that the Fed needs more time to “sort through” how President Donald Trump’s trade actions play out. Treasury yields are on a path for a losing week as markets sense some dovishness in the Fed’s communication while concerns about the economy are also driving demand for U.S. government debt. Market volatility could increase today due to option expiration, though with NCAA March Madness, could potentially see less volume midday.

• In Airlines (DAL, UAL, LUV, AAL): Britain’s Heathrow Airport was shut on Friday after a huge fire at a nearby substation knocked out its power, stranding passengers and angering airlines who questioned how such crucial infrastructure could collapse. The fire cut the power supply and back-up system for Europe’s busiest and the world’s fifth-busiest airport. Airline experts said the last time European airports experienced a disruption on such a large scale was the 2010 Icelandic ash cloud that grounded some 100,000 flights.
• In the Clinical Research Organization Sector: Goldman Sachs still believes the long-term growth prospects for CROs remain intact (though likely at a lower rate than the DD growth seen in the last 5 years), however it believes the near-term outlook is likely to remain challenging. For CRO’s said believe that the weakness in demand is likely to persist through most of 2025 as large pharma budgets rarely change rapidly. As a result of these concerns around the pace of recovery, they downgrade CRL and ICLR to Neutral from Buy.
• In Cruise Lines: CCL shares slipped initially after reporting better Q1 results but offered a Q2 outlook below consensus; NCLH was upgraded to Equal weight at Morgan Stanley as its main thesis around not being able to narrow its net cruise costs (relative to Net Yields) has played out and driven the relative underperformance albeit amidst a market correction. The company has been able to improve its cost structure to be more in-line with peers (ex-dry docks) over the past year, driving EBITDA estimates up ~30%.
• In Autos: TSLA posting its 9^th straight week of declines; in Chinese EV space, NIO Q4 revenue of 19.7B Chinese yuan ($2.70B) compared to $2.79B estimate, as the number of EVs delivered +45% y/y to 72,689 while guided Q1 deliveries 41k-43k well below the 65k estimate and sees revs between $1.69B-$1.76B vs. est. $2.48B; in auto retailers, AZO was upgraded to Buy from Neutral at Davidson (tgt to $4,192 from $3,500) citing its defensive positioning; the company being an inflation and tariff beneficiary; commercial market share gains.

• LAZR +11%; following quarterly earnings results
• LMT +2%; as Bloomberg reported U.S. President Trump will personally announce the Pentagon’s decision on a next-generation fighter jet contract worth at least $20B and that LMT and BA are competing for the winner-take-all engineering and manufacturing development contract.
• SMCI +3%; was upgraded to Neutral from Underweight at JP Morgan as the company has cycled past the uncertainty in relation to pending SEC filings and is on the cusp of benefitting from ramp in Blackwell based server shipments which are already seeing materially higher demand than prior generation

• LEN -6%; Q1 EPS of $2.14 topped consensus of $1.71, while homebuilding was mixed as a lower gross margin (18.7% vs KBW’s/consensus 18.9%/19.1%) offset 3-4% better orders/deliveries; guided Q2 implied EPS of $2.20, which was below consensus $2.40/$2.65 driven by lower margins.
• MU -6%; reversed overnight gains as better earnings, revs, HBM shipments/revs and guidance was overshadowed by focus on margin step-down on the back of NAND weakness & a higher consumer mix.
• NIO -5%; Q4 revenue of 19.7B Chinese yuan ($2.70B) compared to $2.79B estimate, as the number of EVs delivered +45% y/y to 72,689 while guided Q1 deliveries 41k-43k well below the 65k estimate and sees revs between $1.69B-$1.76B vs. est. $2.48B
• NKE -7%; reported a Q3 EPS beat, driven by above-Street sales, and better-than-expected SG&A, but management guided low again and suggested the turn will take more time; guided Q4 revenue to decline in mid-teens range vs. consensus of $11.1B, or implied decline of about 12% from Q4 of 2024
• PL -19%; Q4 reported EBITDA beat expectations, but FY26 revenue guidance was in-line while adj EBITDA guidance was below Street; however, transformative $230M JSAT deal to be digested in FY26, deal provides upfront cash, but related satellite capex moves to COGS weighing on near-term.
• TELA -36%; downgraded by two Wall Street firms after reporting Q4 results, which were well below estimates as the company experienced meaningful sales force turnover as a number of reps were poached towards the end of the quarter and mgmt provided ’25 guidance that was also well below original targets.