The release of the January Consumer Price Index (CPI) caused some inflation concerns in both the stock and Treasury markets. However, today's release of the January Producer Price Index (PPI) did not trigger further inflation worries. Although the headline figures were not entirely reassuring, market participants felt that the upcoming PCE Price Index, due on February 28, might not present an inflation shock. This sentiment was bolstered by month-over-month declines in components such as airfare and physician care, influencing the Treasury market and enabling the stock market to continue its recovery efforts.
Investor confidence was further boosted by the understanding that President Trump's proposed reciprocal tariff plan might not be as economically disruptive as initially feared. The tariffs are not set to be implemented until April 1, and will be applied selectively. Additionally, President Trump proposed discussions with Xi Jinping and Vladimir Putin to reduce defense spending and pursue denuclearization.
The 2-year note yield decreased by six basis points to 4.31%, while the 10-year note yield dropped by 11 basis points to 4.53%, returning to its level before the CPI release. The significant move in the 10-year note yield was notable, although it was overshadowed by the S&P 500's approach to its record closing high of 6118.71.
All 11 sectors of the S&P 500 ended the day higher. The materials (+1.7%), consumer discretionary (+1.6%), information technology (+1.5%), and communication services (+1.1%) sectors led the gains, while utilities (+0.1%) and industrials (+0.1%) lagged.
Advancers outpaced decliners by more than a 3-to-1 margin on the NYSE and approximately 5-to-2 on the Nasdaq. The Russell 2000 climbed 1.2%, the S&P Midcap 400 rose 0.9%, and the equal-weighted S&P 500 increased by 0.9%.
Year-to-date performance:
The Producer Price Index for final demand rose 0.4% month-over-month, exceeding the consensus of 0.2%, following a revised 0.5% increase in December. Excluding food and energy, it increased by 0.3%, matching the consensus. Year-over-year, the index rose 3.5%, with core PPI up 3.6%. Despite initial appearances of improvement, the December revisions indicate that January's gains are relative, not absolute.
Initial jobless claims for the week ending February 8 decreased by 7,000 to 213,000, with continuing claims dropping by 36,000 to 1.850 million, indicating a positive demand outlook from employers.
International market performance:
Commodities prices:
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Twilio (TWLO, Financial) experienced an 8% drop in extended trading after its fourth-quarter results and guidance for the upcoming quarter fell short of expectations. The company reported adjusted earnings of $1 per share, slightly missing the $1.03 consensus, on $1.19 billion in revenue. Despite a 12% increase in communications revenue, the guidance miss overshadowed Twilio's first-ever GAAP operating profitability, as highlighted by CEO Khozema Shipchandler.
Datadog (DDOG, Financial) shares declined by over 8% following a downgrade by Wells Fargo due to slower growth projections and increased spending plans for 2025. The company's guidance of 18-19% revenue growth lagged behind expectations, prompting Wells Fargo to lower its price target from $152 to $140. The analysts cited concerns over slowing growth and uncertain profitability margins as key factors for the downgrade.
Coinbase (COIN, Financial) reported robust Q4 results with a GAAP EPS of $4.68, surpassing expectations by $2.55. Revenue soared 138% year-over-year to $2.27 billion, exceeding estimates by $430 million. The company anticipates strong Q1 2025 performance, projecting substantial transaction revenue and increased marketing expenses due to heightened trading volume and USDC rewards.
Palo Alto Networks (PANW, Financial) saw a 4% drop in its shares after mixed fiscal second-quarter results. The company reported adjusted earnings of $0.81 per share, beating estimates by $0.03, on $2.26 billion in revenue. However, the guidance for the next quarter, while showing growth in Next-Generation Security ARR, was not enough to boost investor confidence.
Airbnb (ABNB, Financial) posted Q4 earnings that beat expectations with a GAAP EPS of $0.73 on $2.48 billion in revenue, marking an 11.7% year-over-year increase. The growth was driven by a rise in nights stayed and a slight uptick in Average Daily Rate, contributing to a strong free cash flow margin of 40% over the trailing twelve months.
Applied Materials (AMAT, Financial) reported a 7% year-over-year revenue growth for its fiscal first quarter, with adjusted EPS of $2.38 surpassing estimates. However, its Q2 revenue outlook of $7.1 billion fell short of the $7.2 billion consensus, causing shares to dip in post-market trading. The company remains optimistic about continued customer investments in leading-edge technology.
Wynn Resorts (WYNN, Financial) shares rose post-market after the company exceeded Q4 earnings expectations with a non-GAAP EPS of $2.42. The casino giant reported flat year-over-year revenue at $1.84 billion, with notable gains in its Las Vegas operations. The positive earnings report comes as the company navigates a challenging environment for its Macau operations.
Roku (ROKU, Financial) shares surged by over 13% after the company reported a Q4 GAAP EPS of -$0.24, beating expectations by $0.17. Revenue increased by 21.9% year-over-year to $1.2 billion, driven by a rise in platform revenue and streaming hours. The growth in average revenue per user and streaming households contributed to the positive market reaction.
Arm Holdings (ARM, Financial) saw its shares rise nearly 6% after reports emerged that Meta Platforms (META, Financial) signed on as the first customer for Arm's own chip. This development indicates Arm's strategic move into chip production, potentially placing it in competition with key customers like Nvidia (NVDA, Financial).
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