The stock market rally suffered sharp, damaging losses with the major indexes falling below key levels. The Fed cut rates but policymakers see modest easing next year, with Fed chief Jerome Powell tempering even those expectations. Treasury yields jumped. But stocks rebounded somewhat on Friday. FedEx leapt on its Freight business spin-off plans while Micron Technology plunged on guidance. Meanwhile Vertex Pharmaceuticals and Novo Nordisk dived on disappointing drug studies. Nike fell on weak guidance.
Stock Market Sells Off On Fed
A less-dovish Fed rate outlook triggered a big sell-off, exacerbating preexisting market weakness. The S&P 500, Dow Jones and Russell 2000 fell through their 50-day lines and the Nasdaq fell below the 21-day line. Treasury yields hit five-month highs. But the indexes jumped Friday, paring weekly losses, on a tame inflation report.
Fed Sees 'Policy Uncertainty'
The phrase of the week, uttered by Federal Reserve Chairman Jerome Powell, was "policy uncertainty," alluding to the agenda of the incoming Trump administration. Powell compared the Fed's job to "driving on a foggy night," adding: "You just slow down." After Wednesday's quarter-point move brought Fed rate cuts to a total of 100 basis points over three meetings, markets now see roughly 50-50 odds that the Fed only cuts by 25 basis points all of next year. Markets couldn't take comfort in the Fed's projection of 50 basis points in cuts next year, because Fed policymakers didn't base the forecast on Trump's actual plans. Most economists think that whatever combination of tax cuts, tariffs and tighter immigration emerges will be inflationary. The uncertain outlook was underscored by Fed policymakers' projections for core inflation next year, ranging from 2.1% to 3.2%. The median forecast is 2.5%. However, Wall Street did take some comfort on Friday from a cool inflation reading for November, which saw the core PCE price index rising just 0.1% on the month, holding the 12-month inflation rate at 2.8%.
Meanwhile, the economy continues to power ahead. Q3 GDP growth was revised up to 3.1% from 2.8%, thanks to an upwardly revised 3.7% increase in consumer spending. Spending has remained solid in Q4, rising 0.4% in November, following October's 0.3% gain.
Micron Tanks On Outlook
Memory-chip leader Micron Technology reported slightly better-than-expected earnings on in-line sales for its fiscal first quarter ended Nov. 28. But its outlook for the current quarter badly missed views, sending shares plunging. Fiscal Q1 sales for AI data centers were strong, offset by weakness in the PC and smartphone markets.
Vertex Drug Can't Beat Placebo
Vertex Pharmaceuticals plummeted Thursday after its non-opioid killer drug showed virtually no difference from a placebo in a study of patients with lumbosacral radiculopathy, also known as LSR or sciatica. After 12 weeks, patients with LSR had a 2.02-point improvement in pain on a scale of 0 to 10. That compared to a 1.98-point improvement for placebo recipients. Vertex is still planning to move its drug, suzetrigine, into Phase 3 testing. In other biotech news, Mesoblast won FDA approval for its graft versus host disease treatment in patients as young as two months old who don't respond to steroids. Shares catapulted by double digits.
Novo Nordisk crashed Friday after the Danish pharmaceutical giant reported its experimental weight-loss drug CagriSegma missed expectations in a late-stage trial. Eli Lilly and Viking Therapeutics jumped.
Tesla FSD v13 Not A Game-Changer?
Elon Musk has said he expects Tesla robotaxis in Texas and California by mid-2025. The EV giant's Full Self Driving v13 went out to all customers this past week. But early feedback suggests it isn't a giant leap forward for autonomous driving. Meanwhile, Tesla continued to see solid vehicle registrations in China, bolstered by year-end incentives. That's offsetting weakness in Europe and the U.S. The company needs to deliver more than 514,000 vehicles in Q4 to hit its goal of vehicle delivery growth vs. the 1.8 million from 2023. TSLA also received several more price target hikes this week. Shares hit a record high Wednesday before paring gains.
Nike Turnaround Begins
Nike reported a sharp earnings drop while revenue fell 8% to $12.4 billion, but both were better than feared. The Dow Jones shoe and apparel giant saw declines across all of its brand segments and sales channels in fiscal Q2, while gross margins fell sharply. New CEO Elliott Hill said that Nike is taking "immediate action" to reposition the business around sports, with CFO Matthew Friend noting that brand momentum has resumed since Hill took over in October. Still shares fell as Nike said it would slash inventory in the near term. Elsewhere, Birkenstock reported fiscal Q4 EPS more than doubled as revenue grew nearly 18% to $478 million, both beating. Birkenstock guided slightly lower on fiscal 2025 revenue, but shares jumped within a base.
FedEx Plans To Unload Freight
FedEx just edged past fiscal Q2 EPS views with a 1.5% gain while revenue dipped 1% to $22 billion, slightly missing. The shipping giant also guided low on fiscal 2025. But FedEx jumped on plans to spin off its Freight business into a separate public company with the delivery heavyweight in cost-cutting mode. FedEx has implemented several cost-cutting initiatives in recent months, including combining its ground, air and other operations in a single company.
Stock Market News In Brief
Lennar reported a 22% EPS drop and a 9% revenue loss for the fiscal fourth quarter, both missing views. Guidance also was weak. Along with Treasury yields surging after the new Fed outlook, Lennar and other homebuilders sold off, extending a sharp retreat in recent weeks.
Cintas reported a 21% EPS gain, slightly beating, while sales grew nearly 8%, in line with fiscal Q2 views. But the provider of uniforms and other business supplies reported a drop in direct uniform sales and warned on pricing. Cintas stock gapped below the 200-day line for the first time in two years.
Nvidia dropped after an analyst said some power semiconductors used with its latest Blackwell AI server chips were overheating. Shares of the power-chip maker, Alpha and Omega Semiconductor, also fell. The issue threatens to delay the introduction of the new Blackwell systems.
Accenture beat Wall Street's targets for its fiscal first quarter ended Nov. 30. But the management consulting and technology services firm cut its earnings outlook for the full year ahead. Still, ACN stock advanced after the report.
Jabil jumped after the electronics contract manufacturer delivered a beat-and-raise quarterly report. Jabil's business got a boost from its cloud computing and data center business, especially with customer Amazon Web Services. However, its EV and energy infrastructure businesses were a drag.
Carnival jumped Friday after easily beating Q4 EPS views, with 10% revenue growth slightly topping. The cruise line operator was bullish on 2025, with Q1 guidance above consensus, but full-year goals mixed.
Darden Restaurants raised its annual sales forecast, counting on higher menu prices and more people dining at LongHorn Steakhouse and Olive Garden chains in the holiday season. Darden reported a 10% EPS increase on a 6% sales gain, an overall beat. Same-store sales rose 2.4%, also outpacing views, after three quarters of flat to negative growth. Darden stock scored a nearly 15% earnings breakaway gap.
Heico posted a 34% earnings gain, edging past views by a penny, but an 8% sales gain missed. The aircraft parts supplier tumbled. Ongoing supplier issues at Boeing and Airbus will keep a lid on new aircraft deliveries and keep demand for servicing older aircraft and engines steady, management said. But Heico's sales growth slowed for the fourth consecutive quarter.
CarMax earnings surged 56%, accelerating from a 13% gain in the prior quarter. Revenue unexpectedly rose 1% after eight down quarters. The used-car seller cited "more stable" vehicle valuations that drove demand. Used vehicles are selling briskly as their prices drop and inventories improve. CarMax briefly regained a buy point in the stock market but ultimately closed lower for the week.
Honeywell said it is mulling a separation of its aerospace business after an activist investor pushed for a breakup of one of the few remaining U.S. conglomerates. The GE Aerospace rival and Boeing supplier promised an update at its Q4 earnings report, due at the end of January. Mutterings about a potential merger between GE Aerospace and Honeywell's aerospace business continue. Such a combination could present a more potent challenge to RTX, which includes Collins Aerospace and Pratt & Whitney. Honeywell stock rallied.
Please follow Ed Carson on Threads at @edcarson1971 and X/Twitter at @IBD_ECarson for stock market updates and more.
