Ticker Reports for December 23rd
Dow Jones: A Relevant Benchmark or a Relic of the Past?
The Dow Jones Industrial Average had the longest consecutive losing streak since 1978, falling for 10 straight days from December 5 to December 19, 2024. Meanwhile, the S&P 500 index, as tracked by the SPDR S&P 500 ETF Trust (NYSEARCA: SPY), was in a relatively flat trading range with six losing days before sliding 3% on December 19. The Nasdaq 100 index, as tracked by the Invesco QQQ (NASDAQ: QQQ), actually climbed to a new all-time time before sliding 4% during the same period with seven red days. Evening news programs still refer to the Dow Jones Industry Average (DJIA) as "the market" rather than the S&P 500 or the Nasdaq 100.
Is It Time to Move Beyond the Dow as a Market Reference?
If you were only following the S&P 500 index, you wouldn't be thinking the market was having such a historic losing streak. However, the DJIA was sinking every day during that period, painting a gloomy climate. The DJIA, SPY, and QQQ used to all move in lockstep historically, but the divergence has been growing. This calls into question which benchmark index truly represents "the market." When people say, "the market is down today," should they really still be using the DJIA, which is only comprised of 30 companies, as the reference or a wider sample of stocks like the S&P 500 index?
Is the DJIA Too Narrow of a Measure of the Markets?
The DJIA is a price-weight index comprised of just 30 stocks. These 30 companies represent the largest and most established companies to provide a barometer of the U.S. economy. A price-weighted index is one where each constituent's price makes up a fraction of the index, as higher-priced stocks will have a greater impact. The problem with a price-weighted index is that if a constituent undergoes a stock split, it will severely impact the value of the index. Critics argue that the DJIA index is no longer an accurate measurement of the financial market’s performance or the U.S. economy.
Established in 1896, the original DJIA index consisted of 12 stocks, which progressively expanded to 20 stocks in 1916 and finally to 30 companies in 1928. It has remained with 30 stocks since then. None of the original 12 stocks remain in the index today. Rather than expand the index, a committee regularly replaces underperformers with new stocks. The Proctor and Gamble Co. (NYSE: PG) is the oldest constituent in the DJIA index, having joined in 1932. The argument is that a larger sample size would paint a more accurate picture of the market's performance.
Is the S&P 500 Index the True Benchmark for the U.S. Markets?
The S&P 500 index was created by Standard and Poor’s in 1957 to track the 500 largest public companies in the United States. The goal was to get a better representation of the U.S. economy and the U.S. equity markets with a more comprehensive list of companies categorized by 11 sectors and 24 industries. The S&P 500 is widely believed to be the most accurate representation and primary benchmark index, which is why the S&P 500 futures are the most heavily traded index futures contract in the world.
It's also the benchmark that compares performance for investors and fund managers (IE, funds often compare their performance to the S&P 500 index). The S&P 500 is a market capitalization-weighted index, which values constituents by market cap (not price like the DJIA index). The problem with a market-cap index is that the largest companies have the most impact on the index value. The Magnificent Seven stocks control nearly 30% of the total S&P 500 index.
While a larger number of stocks in the DJIA index would likely be a more accurate indicator of the U.S. markets, the S&P 500 index should be referenced when it comes to the most accurate barometer of the U.S. economy and U.S. stock markets.
For an even playing field, investors can use the S&P 500 Equal-Weight index represented by the Invesco S&P 500 Equal-Weight ETF (NYSEARCA: RSP). The difference in performance is stark. The SPY is up 24.4% compared to the RSP, up 12% year-to-date (YTD) as of December 20, 2024.
Nvidia is Pivoting to Solve Big Tech's $1 Trillion Problem
Taiwan Semiconductor, a partner of Nvidia's for more than two decades, has seen its shares explode as much as 4,744%.
Now, if you're like everybody else, you want to know what Nvidia's doing next … and who they're going to partner with …
3 Big-Name Stocks Just Announced Big-Time Dividend Increases
These three stocks, which are at or near the top of their respective industries, just increased dividends by double-digit percentages. Below, I’ll reveal how much these companies are paying out to shareholders now. I’ll also touch on notable share buyback news. Plus, I’ll provide an update on key proposed legislation that investors should be aware of regarding one of these companies.
PACCAR: +4% Yield Makes It One of the Top Dogs for Industrial Dividends
PACCAR (NASDAQ: PCAR), the commercial truck manufacturer, has increased its dividend by 10%. The new $0.33 per share dividend will be payable on Mar. 5 to shareholders on record as of Feb. 12. The company has a history of rewarding shareholders with significant dividend payments relative to its earnings. Its average quarterly payout ratio over the past five years is nearly 51%. The new dividend payment gives the company an indicated dividend yield of 4.1% in 2025. The indicated dividend yield measurement assumes the dividend amount does not change throughout the year.
Despite its small quarterly dividend, the company reaches this figure because it often announces a large extra dividend at the end of each year. In 2024, the extra payment was $3.00 per share. In 2023, it was even higher at $3.20 per share. This 4.1% yield stands tall in comparison to the 1.2% figure offered by the SPDR S&P 500 ETF Trust (NYSEARCA: SPY). The company’s indicated yield is also in the top six among large-cap U.S. and Canadian industrial stocks.
Eli Lilly: Pharma Giant Raises Dividend by Double Digit Percentage and Announces Buybacks
Eli Lilly (NYSE: LLY), the world's largest pharmaceutical stock by market capitalization, just announced a big increase in its quarterly dividend. The increase comes in at 15%, marking the seventh consecutive year the company has raised its dividend by that figure. On Mar. 10, 2025, shareholders on record after Feb. 14 will receive a $1.50 per share payment.
In addition to this dividend increase, the company also announced it has authorized a $15 billion share repurchase program. Based on a market capitalization of $691 billion as of the Dec. 20 close, this buyback program represents 2% of the company’s value. Although relatively small, the buyback program is three times larger than its previous program.
Based on the Dec. 20 closing price of just under $768, the company’s indicated dividend yield is around 0.8% for 2025. Although the figure is small, it actually outpaces most of its industry. Of 43 large-cap pharma and biotech stocks in the US, Canada, and Europe, Lilly's dividend yield is higher than 53% of them. Out of these 43 stocks, 21 don’t pay dividends at all.
Mastercard: Good News on Dividends, Buybacks, and Credit Card Regulation
The payments network company Mastercard (NYSE: MA) raised its quarterly dividend by 15%. The company will pay the new $0.76 per share dividend to shareholders on record as of Jan. 9 on Feb. 7. It gives the company an indicated dividend yield of just under 0.6% for 2025.
Like Lilly, Mastercard authorized a meaningful share buyback program. The company now has $15.9 billion in share buyback authority. This figure combines the new $12 billion number with the $3.9 billion that still remains from its previous buyback program. Together, this authorization amounts to over 3% of the company’s $485 billion market capitalization as of the Dec. 20 close.
In other news around Mastercard, some fears about regulation appear to have gone away, at least for now. In November, executives and advisors from Visa (NYSE: V) and Mastercard attended a Senate Judiciary Committee hearing. The point was to discuss the Credit Card Competition Act (CCCA). Some lawmakers and outside analysts argue that Visa and Mastercard hold an unfair duopoly over the credit card market. They say the lack of competition means merchants must pay excessive swipe fees for processing credit card payments.
The act would require banks to offer at least one other payment network to compete against Visa and Mastercard. This would likely lower the payment volume Visa and Mastercard receive, negatively affecting revenue. However, the bill has not yet advanced to a vote. With two weeks until a new Congress begins its term and other more important issues on the table, it's highly unlikely it will. Still, the CCCA has support from both sides of the aisle, making it a situation to monitor. Lawmakers could reintroduce the bill next year.
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Market Overreaction: 2 Stocks to Buy on the Way Down
Every earnings season has its share of overreactions, as stocks can overshoot on the upside and the downside. The fear of missing out (FOMO) can trigger panic and a leapfrog mentality where emotions drive extensive overreactions. Investors can develop FOMO when they believe a stock is going higher, and they don't want to miss the ride. However, investors can also develop FOMO when they worry their stock is going much lower and rush for the exits to try and limit losses. Many times, these types of overreactions create opportunities for investors who have been patiently waiting for a better entry. Here are two stocks that may present buying opportunities on their way down for bullish investors.
Nike: Former CEO Back to Lead the Turnaround
Iconic athletic footwear and apparel maker Nike Inc. (NYSE: NKE) has had a tough 2024, as its stock trades down 29% as of Dec. 21, 2024. The consumer discretionary company botched its strategy to bolster its direct-to-consumer (DTC) channel by alienating wholesalers like Foot Locker Inc. (NYSE: FL). Competitors like On Holding AG (NYSE: ONON) and Hoka, owned by Deckers Outdoor Co. (NYSE: DECK), took the opportunity to grab market share, driving double-digit growth while Nike suffered contraction.
Combined with weak sales in China and tightening consumer spending in North America, Nike suffered sales deceleration in its DTC, wholesale and digital channels. Its CEO resigned after reporting a kitchen sink quarter, setting the bar low to make way for its former CEO Elliot Hill to come out of retirement to lead the turnaround on Oct. 14, 2024.
Fiscal Q2 2025 Earnings Report Wasn’t Too Bad; Guidance Sinks the Stock
Hill, a previous 32-year veteran of Nike, presided over his first earnings report since his return. For fiscal Q2 2025, Nike reported an EPS of 78 cents, beating consensus estimates by 15 cents. Revenues fell 7.7% year-over-year (YoY) to $12.35 billion, still beating consensus estimates of $12.11 billion. Nike Brand revenue fell 7% YoY to $12 billion. Nike Direct revenue fell 13% YoY to $5 billion, driven primarily by a 21% YoY drop in NIKE Brand Digital and a 2% decrease in Nike-owned stores. Wholesale revenues fell 3% YoY to 6.9 billion. North American revenues fell 3% YoY. EMEA revenues fell 7% YoY. APAC and Latin America revenue fell 3% YoY. China's revenue fell 8% YoY.
Nike stock closed at $77.10 on Dec. 19, 2024. Nike shares surged as high as $86.24 immediately following the report, as investors breathed a sigh of relief as the results weren’t too bad.
Nike saved its forward guidance for the conference call, where it announced that FQ3 2025 revenues are expected to fall double digits, much lower than consensus estimates for a drop of 2.4% YoY. Gross margins are expected to fall 300 to 350 bps, which includes restructuring charges during the same period last year. This caused Nike stock to collapse and give back its post-market gains, falling to a low of $71.00 in the postmarket.
CEO Elliot Hill's Priorities
Nike will reinvest in its brands to create inspirational stories. They also plan to be aggressive in sports marketing as they re-signed with the NFL, NBA, WNBA, FC Barcelona, and Brazil Football Confederation in the last 60 days. Hill will prioritize building back and earning the trust of its key wholesale partners and even naming the contacts by first name at the retailers. He plans on clearing out aged inventory to return to premium pricing and shifting Nike Digital to a full-price model. Most importantly, Hill wants Nike to refocus squarely back on sports.
Hill acknowledged there will be near-term pain necessary for long-term gain:
“I recognize that some of these actions will have a negative impact on our near-term results. But we're taking a long-term view here. We're making the decisions that are best for the health of our brand and business, decisions that will drive shareholder value. I strongly believe NIKE's path to sustainable, profitable growth will be through sport.”
Synopsis: Robust AI Landscape
Electronic design automation (EDA) software and semiconductor IP developer Synopsis Inc. (NASDAQ: SNPS) has been struggling to hold a triple bottom support around $492.00 since reporting its FQ4 2024 earnings. Like most chip companies in the computer and technology sector, Synopsis sees the current semiconductor backdrop as a tale of two markets: the robust artificial intelligence (AI) buildout market and the conventional commercial market serving mobile, PC, laptop, industrial, and automotive customers.
Synopsis is benefiting from its AI-centric clients but is suffering headwinds from the rest of the semiconductor industry. Synopsis software and intellectual property (IP) products are tools that semiconductor companies use to design and develop new chips. If these companies reduce their research and development (R&D) spending due to market downturns or other factors, Synopsys could face decreased demand for its products and services, which impacts its revenue and growth.
China Headwinds Prompt Soft Guidance; Crushes Stock
Synopsis reported a strong fiscal fourth quarter 2025 EPS of $3.40, beating consensus estimates by 10 cents, as revenue rose 2.3% YoY to $1.64 billion, beating consensus estimates by $5.85 million. However, the incoming Trump administration's vow to raise tariffs and tighten trade restrictions with China could pose challenges for Synopsys, given the semiconductor industry's reliance on global supply chains and its significant ties to the Chinese market.
This uncertainty prompted Synopsis to provide weak forward guidance. For FQ1 2025, the company issued downside EPS guidance of $2.77 to $2.82 versus $3.52 consensus estimates, with revenues coming in between $1.435 to $1.465 billion versus $1.64 billion. For the fiscal full year 2025, EPS is expected to be between $14.88 and $14.96 versus $14.89, with revenues expected to be between $6.745 billion and $6.805 billion, falling short of the consensus estimates of $6.9 billion.
Synopsis is awaiting regulatory approvals, but hopes to close on its $35 billion acquisition of engineering simulation software designer ANSYS Inc. (NASDAQ: ANSS) during the first half of 2025.
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