Mid-Morning Look

Monday, May 19, 2025

U.S. stocks opened with sharp losses, while Treasuries and the U.S. dollar were also pressured after Moody’s downgraded the U.S. AAA credit rating to Aa1 late Friday, creating a “sell on the news” event overnight, but stock prices have quickly pared losses as investors “buy the dip” with the S&P looking to extend its 5-day win streak. Stocks are still lower, and nearly all eleven S&P sectors still in the red, but off their worst level as Treasury yields pare gains and the dollar pares losses. Moody’s downgraded the U.S. rating from Aaa to Aa1, changed O/L to stable; cited growing burden of financing the federal government’s budget deficit and the rising cost of rolling over existing debt amid high interest rates. Longer-dated 30-year Treasury yields rose to the psychological 5% level for the 1^st time since late 2023, and the dollar slipped, while the 10-yr yield hit highs above 4.56%, while gold was rallying. At the same time, Fed speakers are lowering expectations on rate cuts this year as Atlanta Fed boss Bostic told CNBC earlier this morning that the US credit downgrade could ripple through the economy and the Fed may have to wait 3-6 months to see how the economic uncertainty settles. All said and done, Bostic thinks there will be one rate cut this year.

• In Chemicals: MEOH was upgraded to overweight at Piper based on recently updated fundamental and company data and some positive results from the last quarter; ASIX was also upgraded to overweight at Piper to reflect the earnings benefit of the ammonium sulfate business as well as the relatively small impact of tariffs on the nylon, nylon intermediate and chemical intermediate businesses.
• In Containerboard/Paper sector (IP, PKG, SW, GEF): Truist noted on Friday, Fastmarkets RISI (RISI) released its weekly Pulp & Paper Week (PPW) publication that included May containerboard and boxboard pricing and relevant commentary. Pricing for domestic containerboards remained unchanged from April while URB increased $30/ton and other boxboard grades were flat.
• In IT Services & Consulting: CTSH was upgraded to Overweight from Neutral at JPMorgan (tgt to $98 from $88) saying the company has made significant strides in closing the growth gap versus peers through its focus on execution, large deals and employee retention under CEO Ravi Kumar; JP Morgan downgraded DAVA to Neutral from OW following its disappointing results and guidance cut last week

• SOLV +1%; was upgraded to Overweight and raised PT to $87 at Piper saying they had been warming to the stock in recent months and are turning more constructive with its rating as it got increasingly confident in management’s ability to execute against a steady top-line and margin turnaround.
• TXNM +7%; enters into an agreement to be acquired by Blackstone infrastructure for $61.25 per share as acquisition reflects total enterprise value of $11.5B
• UAL +1%; upgraded to Buy from Neutral in airlines on improving 2H at UBS saying recent tariff relief due to the 90-day agreement with China and framework with the UK support a shift in base case from a downturn in the economy to stability/slow growth
• UNH +3%; extended Friday’s bounce after five UnitedHealth Group insiders including new CEO Stephen Hemsley scooped up the health insurer’s beaten-down stock in recent sessions late last week according to form 4 SEC filings – shares rose 6.4% on Friday and snapped an eight-session losing streak.

• BABA -2%; after the New York Times reported that the Trump administration has raised concerns over Apple’s potential deal with the Chinese tech giant.
• RDDT -4%; was downgraded to Equal Weight from Overweight at Wells Fargo (tgt to $115 from $168) saying Reddit user issues are now likely more permanent; prepare for logged-out user declines as Google more aggressively implements AI features in search
• SANM -6%; after agreed to acquire ZT Systems’ data center-infrastructure manufacturing business from AMD for up to $3 billion; SANM will provide $2.25 billion of cash, $300 million consisting of an even split in cash and equity, and a $450 million contingent consideration based on financial performance.
• TLN -2%; said it is pushing outage timeline from mid-May to first week of June for its Susquehanna nuclear facility unit 2 to account for remaining tasks; the co expects outage extension to increase expenses by about $35 million.
• WMT -1%; after U.S. President Donald Trump criticized the retailer, saying the company should “STOP trying to blame Tariffs as the reason for raising prices throughout the chain.” Walmart last week said the Trump administration’s tariffs would lead to price increases.