Goldman Sachs: Trading Desk 01/22/2025
S&P +61bps closing at 6086 on MOC volume of 2.7B in sales. NDX +133bps at 21853, R2K -61bps at 2303, and Dow +30bps at 44156. 13.78B shares traded across all US equity markets vs. the YTD daily average of 16B shares. VIX +27bps at 15.10, Crude Oil +59bps at 75.38, US 10Y Treasury Bond +3bps at 4.60, Gold +38bps at 2755, Dollar Index (DXY) +18bps at 108.25, and Bitcoin -282bps at 103777.
The S&P and NDX rose, led by strength in technology, media and telecom (TMT), due to better overall results and another round of news about large global investments in artificial intelligence (AI). The S&P equal-weight index underperformed the cap-weighted index by about 1%, with 328 names closing lower on the session. ORCL +7% (after +7%) on more details about its collaboration with Softbank and OpenAI called “Stargate,” which will also include technology partners such as ARM +15%, NVDA +4% and MSFT +4%.
Other highlights: STX +7% on continued margin expansion; on the industrial technology side, both APH and TEL reported strong results. PG +2% on better-than-expected organic sales growth and volumes; GEV +2% on its results, with some questions about Q4 and Q1, but overall well-received on strength in orders and an electrification backlog of over $20 billion. TRV +3% driven by core subscription growth, lower than expected catastrophe losses, favorable net bookings development and improved net investment income (NII).
Our market activity was a 6 on a scale of 1-10 in terms of overall levels. Total executed flow ended +650 basis points versus the 30-day average of +30 basis points. Limit orders (LOs) ended as net buyers of +2 billion, driven by technology, consumer discretionary, and communication services. Hedge funds ended balanced, with demand in technology and staples versus supply in communication services and consumer discretionary.
CHASING CONSENSUS PRE- & POST-INAUGURATION: We remain very active in thematic baskets. Historically, we have seen clients reduce policy-focused trades between the election and the inauguration, but in contrast, they are now significantly increasing positions in consensus themes: long AI/semiconductors/data centers and short election-sensitive renewables.
AI: Semiconductors for AI (GSCBSMHX), General AI (GSTMTAIP), AI Software (GSTMTAIS).
Renewables: Choice-Sensitive Renewables (GSCBDMRN).
DERIVATIVES: SPX floating volatility was unchanged on the day, while fixed volatility rose sharply. This makes sense as the market reaches all-time highs. We believe long volatility, particularly in the shorter time frames and at higher levels, is starting to become more attractive. The market is entering a longer gamma zone, evident in the declining cost of straddle strategies on SPX. Tomorrow's straddle is already priced in at 50 basis points; we have exceeded that close-to-close move in 4 of the last 5 days, with a 240-point increase in the last 5 trading days.
AFTER CLOSING:
MTB: Authorizes $4 billion in share repurchases, replacing the previous $3 billion authorization in 2022 (of which $2.8 billion was executed).
KNX +5% after-close: Q4 EPS of $0.36 vs. $0.33 expected, with revenue aligned at $1.86 billion vs. $1.88 billion. Anticipates a gradual recovery in market conditions by 2025. Reiterates Q1 EPS of $0.29-$0.33 vs. $0.30 expected, and $0.46-$0.50 for Q2 vs. $0.47 expected. We view this as better than feared following JBHT’s bearish guidance.
KMI -4% after close: Q4 EBITDA of $2.06 billion vs. $2.1 billion expected, with 2025 EBITDA forecast of $8.3 billion and EPS of $1.27, both in line with consensus. Anticipates dividends of $1.17 in 2025 (+2%). Assumes WTI oil price of $68 and Henry Hub of $3. Net debt/EBITDA at end of 2025 at 3.8x. Implied move of 4%. Conference call at 4:30pm. At first glance, guidance looks conservative and could be adjusted higher in 2025.
AA +4.35%: Q4 EBITDA of $677 million vs. $660 million expected, on improved sales of $3.49 billion vs. $3.38 billion expected and EPS of $1.04 vs. $1.01 expected. Anticipates 2025 aluminum shipments of 2.6-2.8 million tonnes; production of 2.3-2.5 million tonnes. Alumina shipments of 13.1-13.3 million tonnes, production of 9.5-9.7 million tonnes. Implied move of 5%.