Reddit Makes Debut, Fed Holds Rates, DOJ Sues Apple, and Japan Raises Rates for First Time in 17 Years

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By: Alex Nahigian

In this week's rundown, we analyze major events from this past week, including taking a deeper look into Reddit’s public debut, the Federal Reserve's March FOMC meeting, Apple’s further legal controversy, and a groundbreaking rate hike in Japan.

What You Should Know Going Into Your Week

• Fed holds rates, maintains 3-cut outlook for 2024*
• Reddit pops 48% in NYSE debut after selling shares at top of range*
• DOJ sues Apple over iPhone monopoly in landmark antitrust case*
• Bank of Japan raises interest rates for first time in 17 years*
• 140 killed, more than 70 in ‘serious condition’ following attack on Moscow concert hall
• Switzerland becomes first major economy to cut interest rates in surprise move
• China kicks off the year on strong note as retail, industrial data tops expectations
• U.K. inflation slides to 3.4%, below expectations
• Bank of England holds interest rates at 5.25%
• Bitcoin drops 8% in a week as volatility spikes to near one-year high
• Chipmaker Micron's shares surge 16% as AI boom drives strong forecast
• February home sales spiked 9.5%, the largest monthly gain in a year, as supply improves?
• Intel awarded $8.5 billion in CHIPS Act grants to subsidize semiconductor manufacturing
• Gucci owner Kering tanks 14% after Asia profit warning, dragging down European luxury brands

*indicates topic will be discussed further

Reddit Shares Explode in IPO

Reddit shares jumped 48% in their debut on Thursday, in the first initial public offering for a major social media company since Pinterest hit the market in 2019. The 19-year-old website that hosts millions of online forums priced its IPO on Wednesday at $34 a share, the top of the expected price range.?

Per CNBC, Reddit and selling shareholders raised about $750 million from the offering, with the company collecting about $519 million from the IPO. The stock opened initially at $47 and reached a high of $57.80, marking a 70% increase at its peak for the day. Reddit closed at $50.44 on Tuesday, seeing the company reach a market cap of about $9.5 billion. However, despite the early excitement, Reddit finished at $46 at close on Friday.?

Going into its IPO, key indicators gave investors confidence that Reddit would continue to roll on, as its financial performance has been impressive historically. Reddit’s annual sales for 2023 rose 20% to $804 million from $666.7 million a year earlier, and Reddit is betting that data licensing could become a major source of revenue, and said in its filing that it’s entered “certain data licensing arrangements with an aggregate contract value of $203.0 million and terms ranging from two to three years.” This year, Reddit said it plans to recognize roughly $66.4 million in revenue as part of its data licensing deals.

Historically, the aftermath of an IPO has been associated with pullbacks, as early price upsides are counteracted by steep declines. Investors should keep an eye on Reddit this week to get a better idea of where the social media giant will be heading in the future.

Federal Reserve Holds Rates, Maintains 3-Cut Outlook

Following last Wednesday’s Federal Open Market Committee meeting, the Federal Reserve held interest rates at 525 to 550 basis points (5.25-5.50%), as expected. Fed Chair Jerome Powell reiterated the committee’s plans to cut rates three times by the end of 2024.?

Powell did not elaborate on the timing of each cut but said he still expects the cuts to come “as long as the data cooperates.” Futures markets following the meeting were pricing in a nearly 75% probability that the first cut would come at the June 11-12 meeting. A bit on the positive side, as the current probability lies at a 66.7% chance for rates to be cut to 500-525 bps as of the June meeting, according to the CME FedWatch Tool.

Talk has shifted towards the timeline of this year's presidential election, as debate has arisen over the timeliness of how rate cuts will affect national opinion on the health of our economy. Jerome Powell has been quick to shut down any discussion that the Fed’s delay in rate cuts has remotely anything to do with the political landscape and reaffirmed that he and the committee would be looking to drop interest rates in the fall, “presidential election or not.” Where interest rates are by November will play a crucial role in the perception of American voters heading to the polls in one of the biggest election years worldwide.

It’s no secret that the markets priced in more than three rate cuts going into this year, especially on the back end of a bull run. However, despite the Fed pushing back the number of cuts we will actually get, markets have stayed optimistic that we will get all three by the end of the year.?

DOJ Sues Apple For Antitrust Violations

The Department of Justice (DOJ) sued Apple on Thursday for antitrust violations for the third time in the last 14 years. The DOJ cited that Apple’s iPhone ecosystem is a monopoly that is driving its “astronomical valuation” at the expense of consumers, developers, and rival phone makers.?

The third lawsuit follows years of investigations into Apple’s business practices and two prior DOJ cases against Apple, where the tech giant was sued over e-book prices and another time for allegations that it colluded with other technology companies to depress salaries. The government has not ruled out breaking up one of the largest companies in the world, with a Justice Department official saying on a briefing call that “structural relief was on the table if the U.S. were to win.”

On the back end of a disappointing twelve months, Apple shares fell more than 4% during trading on Thursday. Investors are left with a decision about whether or not to abandon one of the most reliable holdings over the past decade, as a legal war seems to be brewing. Only time will tell the consequences, if any, Apple will have to face, as complaints are adamant that Apple’s “anticompetitive behavior is designed to maintain Apple’s monopoly power while extracting as much revenue as possible.”

Bank of Japan Raises Rates For First Time in 17 Years

Japan’s central bank hiked interest rates on Tuesday for the first time since 2007, ending the world’s only negative rates system and other unconventional policy easing measures enacted over the course of the last few decades to combat deflation.?

For those unfamiliar, about two decades ago, the Bank of Japan (BOJ), adopted a nuanced method of monetary easing that included a negative interest policy, which in broad terms, would see lenders paying borrowers for holding debt as a method of boosting the money supply. In an attempt to inflate the economy, extensive long-term Japanese bonds were purchased as incentives to spur economic activity and consumer and business spending.?

Per CNBC, the BOJ raised its short-term interest rates to around 0% to 0.1% from -0.1% at the end of its two-day March policy meeting. Japan’s negative rates regime has been in place since 2016. The central bank also abolished its yield curve control policy, a measure that ends the negative interest rates that central bankers used to try to boost the country's stagnant economy, in particular for Japanese sovereign bonds, which the central bank has employed to target longer-term interest rates by buying and selling bonds as necessary. Scaling back its asset purchases and quantitative easing, the BOJ said it would stop buying exchange-traded funds and Japan real estate investment trusts (J-REITS). It also pledged to slowly reduce its purchases of commercial paper and corporate bonds, with the aim of stopping this practice in about a year.?

Positive Japanese interest rates come on the back of Japan’s Nikkei 225 Average, the leading and most-respected index of Japanese stocks, reaching its all-time high just last week. Now, what does this mean for the United States?

The BOJ’s decision could have a “knock-on effect” on U.S. investors, particularly in correlation with Treasury yields, if Japanese investors start to act on their positive interest rates domestically.?

Firstly, if there are fewer Japanese buyers of U.S. Treasurys, that alone would help send yields higher because fewer people would be in the market for U.S. Treasurys. Higher Treasury yields could, in turn, send interest rates higher, which would make loans more expensive for all sorts of borrowers in the U.S..

Moreover, many Japanese investors actively borrow yen at low rates to buy higher-yielding U.S. Treasurys, a practice commonly called a “carry trade,” during their period of negative interest.

But with the Bank of Japan pushing interest rates higher in Japan, that trade wouldn’t work as effectively, and some investors could bring that money back home, or in simple terms, investors wouldn’t return what they had been on an already weak Japanese yen.

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*Merriam-Webster identifies Treasury pluralized as “Treasurys”

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Weathering Wall Street references CNBC and Bloomberg for research.