Weekend Update #209
Thank you for your continued support and engagement. Each week, we're sharing what companies we're researching and the what, the who and the how that we think makes the companies interesting and unique. This roundup is brought to you weekly by a group of interns, creative minds, artists and investors who believe that through best in class investing along with the democratization of financial education we can do great things together. Enjoy, Explore and Share.
The December FOMC meeting and fresh inflation data made for a volatile market this week, with indices posting their worst weekly performances since November 11-15. The Federal Reserve delivered on an expected “hawkish cut”, but a higher inflation outlook for 2025 and an unclear fiscal policy environment ahead introduced enough uncertainty to rattle markets. Following the FOMC conference, the S&P 500 had its worst daily performance following a scheduled Fed meeting since 2001, ending Thursday down 2.95%. This week was also marked by a looming government shutdown as President-elect Donald Trump and co-head of DOGE Elon Musk successfully shot down a first spending proposal while failing to garner necessary support for their own proposal. On Friday, House Republicans said they reached a unanimous agreement on a proposal that removes the debt limit while securing disaster relief and farmer aid budget, which they believe will avoid a government shutdown.
Thursday’s FOMC rate decision, updated SEP, and press conference can be summed up by the perceived balance of risks tilting back toward inflation and away from the labor market. In contrast to projections in September, FOMC participants upwardly revised estimates for 2025 GDP growth, PCE inflation, and the federal funds rate while downwardly revising forecasts for the unemployment rate. FOMC participants also showed a sharp increase in uncertainty around the future path of PCE inflation. The result was a projected interest rate path that only incorporates 2 cuts throughout 2025 as opposed to the prior 4 cuts baked into the forecast. The increase in uncertainty is due to both slower-than-expected progress on returning inflation to the 2.0% target and potential fiscal policy measures like tariffs threatening to spark a trade war and add inflationary pressures to the economy.
Internationally, Canadian Finance Minister Chrystia Freeland abruptly resigned this week, following her demotion from Prime Minister Justin Trudeau. Brazil’s currency selloff, with the real reaching its lowest levels against the U.S. dollar since 1994, spread to stocks and bonds and may force the government to cut spending. Geopolitical risks increased with Ukraine seen as responsible for the assassination of a high-ranking Russian officer, the first since the beginning of Russia’s invasion. Moody’s downgraded France’s credit rating to Aa3 from Aa2 as the country struggles to agree on budget proposals that will sustainably reduce fiscal deficits in the coming years.
In economic data this week, retail sales exceeded expectations, rising 0.7% MoM in November, but advanced less than expected on ex-auto and ex-auto & gas measures at just 0.2% MoM growth. GDP grew faster than expected at 3.1% QoQ in Q3 2024, compared to the previously reported 2.8% figure. Initial jobless claims fell below estimates at 220,000, which was a positive surprise after mounting an upward trend since September. Personal Income and Personal Spending metrics missed estimates, confirming softening consumer trends that factored into the Fed’s rate cut. In November, the Fed’s preferred inflation gauge, PCE, rose at a cooler-than-estimated pace at 0.1% MoM and 2.8% YoY. The University of Michigan’s final December survey showed a more positive outlook on future business activity and current buying conditions, with a report that raised the risk of a buy-in-advance-of-inflation tendency emerging among consumers.
In stock-specific news this week, Europe’s largest company by market cap, Novo Nordisk, lost $120 billion in market value and fell as much as 27% on Friday as their next-generation GLP-1 injectable CagriSema failed to live up to investors’ weight-loss expectations. The 22.7% body weight reduction reported in the Phase 3 CagriSema trial is in line with Eli Lilly’s current 21% weight loss achieved with Zepbound and below its next-generation retatrutide injectable at 24%.
Friday’s Close (Weekly Performance)
S&P 500 5,930.85 (-1.99%)
Nasdaq 19,572.60 (-1.78%)
Dow Jones 42,840.26 (-2.25%)
Thank you Blue Room Analyst JARED FENLEY.
What a week it’s been. Volatility, as measured by the Chicago Board Options Exchange’s Volatility Index (VIX), surged to a level not seen since the yen carry trade debacle that sent the Nikkei tumbling more than 12% on August 5. The VIX, often referred to as the "fear gauge," traded higher this week following Federal Reserve Chairman Jerome Powell's speech. Although the Fed cut rates, it wasn't received well by the stock market for a few reasons:
1. Fewer Rate Cuts: Powell indicated that the Federal Reserve might implement fewer interest rate cuts in 2025 than previously expected. This news disappointed investors who were hoping for more aggressive rate cuts to stimulate the economy.
2. Economic Uncertainty: Powell's comments highlighted ongoing economic uncertainties, including concerns about inflation and the job market. This cautious tone added to investor anxiety.
3. Market Expectations: The market had already priced in a certain level of rate cuts, and Powell's speech suggested a slower pace of easing, which led to a negative reaction.
These factors combined to create a sense of unease among investors, leading to a drop in stock prices. After more encouraging inflation data was released on Friday, the market began to recover and Fund One outperformance was back on track.
During the volatility, our standout performer was our second largest holding Palantir Technologies. We have talked about it in past Spotlights but as a quick reminder, Palantir is a company that specializes in big data analytics and software platforms.
Here are some key aspects of what Palantir does:
1. Palantir Gotham: This platform is used by government agencies, including the U.S. Intelligence Community and the Department of Defense, for counterterrorism investigations and operations. It helps users identify patterns hidden within large datasets, such as signals intelligence and reports from confidential informants.
2. Palantir Foundry: This platform is designed for corporate clients and helps organizations integrate and analyze their data in one central operating system. It's used by companies like Morgan Stanley, Airbus, and Fiat Chrysler Automobiles
3. Palantir Apollo: This software facilitates continuous integration and continuous delivery (CI/CD) across various environments, helping customers deploy their software efficiently.
4. Palantir Artificial Intelligence Platform (AIP): This platform provides unified access to open-source, self-hosted, and commercial large language models (LLMs), transforming structured and unstructured data into LLM-understandable objects
In essence, Palantir's platforms are designed to help organizations make sense of complex data and turn it into actionable insights, whether for national security, corporate operations, or other applications. In addition to its stellar recent growth, Palantir's inclusion in the Nasdaq-100 index highlights its strong market position and potential for future growth.
We feel that this year, in particular during the final stretch, Fund One performance has been indicative of the absolute and relative performance that we are proud to deliver to our investors over the long run. All of us on the Blue Room Investing Team are dreaming of a Santa Rally next week to add to our recent outperformance. Until then, we hope you enjoy the wonderful holiday season. Cheers!
Thank you Blue Room Investing President JOHN FENLEY
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