TOP STORY
😰 Market Drops Sharply After Fed Announcement Sparks Fears

😬 The US markets had a rough week with a 3% drop on Wednesday - the second biggest loss of the year - before a bit of a recovery on Friday. Here’s how the indexes stacked up for the week:

• S&P 500: -2.2%

• Nasdaq 100: -2.8%

• TSX: -2.6%

• Bitcoin: -8.5%

👀 So, let’s take a look at the cause for the drop and what it means for the market going into 2025…

🤩 First off, things aren’t really so bad…

👏 Before we dive into the reasons for the drop - let’s take a second to zoom out and appreciate the incredible year we’ve had this year in the markets.

📈 Year-to-date, the S&P 500 is up 25% - which has only happened 5 times in the past 25 years! If we put things into perspective, this week’s drop is but a small blip in an otherwise outstanding year:

🤔 Ok, but what caused the drop?

🏦 While market fluctuations can sometimes happen without any strong cause, this time, there is a clear reason: the Fed’s announcement. Or, in the words of Bloomberg:

🔪 On Wednesday, the Fed - which sets target interest rates in the US - announced a 0.25% cut to 4.25%.

😰 This was largely expected, and interest rate cuts are generally good for the market as they reduce borrowing costs and bond yields, making stocks more appealing, but it was what the Fed leader Jerome Powell said next that caused the dip:

😢 With this and his other statements, Powell essentially signaled that there would be fewer rate cuts to come than expected - causing the biggest Fed-included shock to the market since 2013.

🎯 Now, instead of 4 rate cuts, the market is expecting only 2 - with experts changing interest rate projections for the end of 2025 from 3.35%, all the way up to 3.84%.

🩸 The market’s brutal response to the news can be seen across a number of indicators - from the S&P 500, to the Treasury Yield, and even the VIX index - a measure of market volatility:

⭐️ A better-than-expected inflation report

The Fed’s interest rate decisions are heavily based on the inflation rate, and Friday gave investors a glimmer of hope as the latest inflation report showed only a 2.4% annualized inflation jump - below the 2.5% estimated.

This slightly increased expectations for Fed rate cuts in 2025 and led to a nice Friday recovery of +1.1% in the S&P 500.

📈 📉 What does this mean for the market?

While the Fed’s annoucement wasn’t what the market was hoping for, even after the drop, the ratio of performance between stocks and bonds is still above its 50-day moving average - meaning stocks are still crushing it over bonds and no major ‘crash’ has happened by any means.

🤔 If you’re wondering how much you need to obsess over all this and how it should affect your investing decisions, the answer is probably ‘not much.’

😴 The impact of the announcements (and now inflation report) have already been priced into the market, so investors should stick to their strategy, rest easy during the holidays, and stay focused on the long term!

As any long-term investor knows, volatility is part of the game, and in the words of Jay Hatfield, CEO of Infrastructure Capital Advisors:

💡 Blossom was filled with tons of great discussions and insights throughout the week reacting to the dip - here are a few to check out:

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OTHER BIG HEADLINES
🍎 Apple Up 2.6% After Latest Apple Intelligence Update

• Despite the poor performance of the market overall, Apple ($AAPL) ended the week up 2.6% after its second rollout of AI features for the iPhone 16.

• The core feature in this update was bringing ChatGPT to the iPhone, iPad, and Mac, but it also included Apple Visual Intelligence, Image Playground, and Genmoji (more details of all the Apple AI features in my previous Weekly Buzz post here)

• With the update, ChatGPT will be available through Siri (FINALLY), plus through Writing Tools and Visual Intelligence.

• As outlined by Business Insider, Apple has had a bit of a rocky year - with antitrust issues, rising competition in China, questions around CEO succession, and criticism about being behind in AI - and many Apple optimists are banking on the Apple Intelligence to spur an upgrade ‘super-cycle’ (or at least stronger-than-usual).

• But many critics are skeptical - saying Apple’s AI rollout is “too staggered” to spur a super-cycle and that the AI changes are not fully baked or significant enough to drive mass upgrading.

• So far, based on the data, it seems critics are right - according to some reports, iPhone 16 sales are underperforming last year’s models and consumer awareness of the new features remains low.

📉 Micron Stock Crashes 15% After Weak Q2 Forecasts

• Micron Technology ($MU) stock plunged 15% on Friday after the company issued a Q2 revenue forecast of $4.3 billion, significantly below Wall Street’s expectations of $4.9 billion.

• Micron expects a gross margin of -10% for the quarter, driven by pricing pressure in the memory chip market, compared to a gross margin of -6.7% in Q1.

• Executives blamed weak demand for consumer electronics, including smartphones and PCs, along with oversupply issues for the reduced forecasts

• Micron’s primary business is dynamic random-access memory (DRAM) chips, which are used for data centers, mobile devices, consumer electronics, automotive, and industrial applications.

• Micron is one of the few suppliers of high-bandwidth memory (HBM) chips, which are essential components in AI-focused GPUs (Nvidia’s core business).

• Despite the challenges, Micron reiterated its confidence in the AI markets, pointing out that revenue from its HBM chips has more than doubled

• Analysts at Morgan Stanley, Goldman Sachs, and many other firms cut their price targets for Micron on the news, but analysts’ ratings remain high overall, with an average rating of ‘Strong Buy’ according to 24 analysts on TipRanks

• An analyst from TD Cowen says the adjustment “did not alter the fundamental thesis for the stock” pointing to the company’s impressive 61.59% revenue growth over in the last twelve months.

💊 Pharma Giant Novo Nordisk Plummets 23% After Weight-Loss Drug Has Disappointing Late-Stage Trials

• Novo Nordisk ($NVO) shares dropped 23% after its new weight-loss drug, CagriSema, underperformed in late-stage clinical trials.

• Novo is the producer of Ozempic and Wegovy, and CagriSema was seen as the next evolution of the company’s revolutionary weight-loss drugs.

• The weight loss driven by CagriSema in trials fell short of prior projections, disappointing investors who hoped for a game-changing product.

• Analysts warned that the results could jeopardize Novo Nordisk's status as the weight-loss market leader as many competitors enter the fray.

• Eli Lilly ($LLY) - the runner-up in the space, showed earlier this month that it’s drug Zepbound leads to greater weight-loss than Novo Nordisk’s Wegovy putting even more pressure on CagriSema to perform.

• Some experts remain optimistic, citing Novo Nordisk’s robust R&D pipeline and its dominance in GLP-1 agonists as competitive advantages.

• The company reaffirmed its commitment to innovation, with ongoing work on next-gen therapies for diabetes and obesity, as well as improved drug delivery mechanisms.

FROM THE BLOSSOM COMMUNITY
⭐️ Featured Discussions this Week

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