TOP STORY
😬 Financial Stocks Have Their Worst Month vs the Market in Over 30 Years

☀️ Happy Sunday everyone! It was a busy week in the markets, so let’s dive right in:

🏛️ First, on Tuesday, basically every major tech leader met with Trump at the White House, where they signed a voluntary accord outlining safety standards and practices for AI, following weeks of AI doomerism.

📉 On the macro side, jobs and core inflation data were released Friday, showing the U.S. added only 29,000 jobs in September vs a forecast of 84,000, while the unemployment rate rose to 4.2%.

✨ While bad news for the economy, investors saw this partially as good news, as it means less pressure on the Fed to raise interest rates, leading to a mixed week in the markets:

• The S&P 500 fell -0.27%

• The Nasdaq 100 rose +0.65%

• The TSX fell -0.83%

🗓️ Friday also closed out September, with the S&P 500 finishing the month down ~0.4%, its first negative month since July.

🔍 But if we look past the headline numbers, we see a story of two markets: AI stocks keep hitting records, while most of the market slipped (387 of the S&P 500's stocks fell in September).

🏦 Most notable was Financials, which lagged behind the market by the most in 36 years, falling 7% (our top story today).

💡 But before we talk about the banks, let me give a quick breakdown of 3 other big stories this week:

• 💸 Bond Yields Inverting

• 💾 Micron’s ($MU) Revenue Soars 379%

• 👟 Nike’s ($NKE) Woes Continue with Falling Revenue

1. 😬 Bond Yields Are Close to Inverting

🔴 Over the past couple of weeks, the 10-year Treasury yield has been rising to new heights, this week hitting 5.34%, its highest level since 2002, blowing past the 19-year high we flagged last week.

😨 All of this has led analysts to raise concerns about a possible "inversion,” when short-term bonds yield more than long-term ones. Last week, the gap between the 2-year and 10-year shrank to just 0.17 percentage points (its tightest since early 2025).

🤔 If this is all gibberish to you, basically the longer you lend the government your money, the higher an interest rate you should get paid. So when that flips, it's the bond market's way of saying it expects trouble ahead.

⚠️ The reason this is watched closely is that the yield curve has inverted before nearly every U.S. recession in the past 50 years, which has made it one of the most famous recession warning signs in all of investing (though it's not foolproof… the 2022 inversion famously came and went without one).

😮‍💨 Now, nothing has happened yet, and after this week's jobs report, the gap has widened back to about 45 basis points, with some analysts thinking the pressure is already easing.

👀 But either way, bond yields are worth keeping an eye on.

2. 🥳 Micron Reports Blowout Earnings, Growing Revenue 379%

🤖 Next, some tech news…

💾 On Wednesday, Micron ($MU), the only US-based maker of high-bandwidth memory chips, reported its earnings, crushing analyst expectations:

• ✅ Revenue hit $54.23 billion vs. $51.5 billion expected, up ~379% year-over-year

• ✅ Adj. EPS hit $33.42 vs. $31.61 expected, up 1,000%+ year-over-year

🔮 Micron is now targeting $61.5 billion for next quarter, well above expectations. But what really caught analysts' attention was the long-term outlook, with management saying more than 75% of its FY2027 shipments were already committed through supply agreements.

📈 This especially matters because the biggest fear with memory chips has been that today's boom is just a cyclical peak. But D.A. Davidson's Gil Luria said this new outlook addresses those concerns.

🤷 Despite the insane results, the stock barely moved this week, with analysts saying the market has already priced in very high expectations (Micron shares are up more than 240% in 2026).

3. 👟 Nike Continues to Freefall As Earnings Show More Rough Patches

📉 As we covered last week, Nike has been in a generational freefall, down 78% over the past 5 years, and we said this week's earnings would test whether the new CEO’s turnaround strategy is paying off.

😬 Well, unfortunately for Nike shareholders, the numbers are still in rough shape, with revenue coming in at $11.2B, below expectations and falling 4% year-over-year. Converse sales continued to fall, dropping 28%, while Nike Direct revenue fell 8%.

✂️ The company also announced more layoff plans for FY2027 despite already cutting staff twice this year…

📊 Now, there were some bright spots, specifically in Nike’s performance categories (and with North America revenue rising 2%), but the bad outweighed the good, and shares ended the week down 5%, closing out September down 9% to the stock’s lowest price since 2013 (when the iPhone 5 launched)

👀 But with bonds, Nike, and Micron covered, let’s turn our attention to the big story of the week: why financial stocks just had their worst month vs. the S&P 500 in over 30 years, and what it means for the market…

✨ But first, a quick word from this week's sponsor, CIBC CDRs!

SPONSORED BY CIBC CDRs
🌐 Interested in US stocks but not at today’s exchange rate?

💸 When Canadians invest in U.S. stocks directly, they first need to convert Canadian dollars into U.S. dollars. With today’s exchange rate, the Loonie doesn’t go as far. CDRs trade in Canadian dollars, so your purchase, sale, and dividends all stay in CAD.

Why Choose CIBC’s CDRs?

✅ Affordable Access: Gain exposure to the world’s largest companies at a fraction of the cost.

📈 Currency Risk Mitigation: The built-in currency hedge is designed to protect your returns from exchange rate fluctuations.

💧 Liquidity You Can Rely On: CDRs pull liquidity from their underlying global stocks, just like ETFs. With market makers supporting fair pricing, you can trade with confidence.

📲 Ease of Trading: Buy and sell CDRs just like any stock or ETF.

For Canadians, the value is in the simplicity: you can trade in the currency you use every day, without sacrificing your exposure to the specific global companies that you have conviction in.

^{*See the CIBC CDRs disclaimer at the end of the newsletter}

TOP STORY
🏦 Financial Stocks Have Their Worst Month vs the Market in Over 30 Years

😬 In September, the S&P 500 fell about 0.4%, with 9 of the 11 sectors ending the month in the red, and only Tech and Communications gaining.

📉 But of all the sectors, financials took the biggest hit, with household names like JPMorgan ($JPM) falling 7% and Goldman Sachs ($GS) dropping 12%, and the sector down ~7% overall, its worst monthly performance since March 2023.

😰 Against the broader market, it was even worse. Financials had their worst month relative to the S&P 500 since 1990, with only 3 of 75 financial stocks in the index rising in September.

🤔 So why did financials do so poorly, and what does it mean for the market? Well, let's break it down:

🪗 The Bond Market Squeezing The Banks

🏦 The first reason is that surging bond yields are hurting the banks in 2 ways:

• 📊 First, a flatter yield curve squeezes their profits, since banks make money by borrowing short-term and lending long-term

• 💼 Second, banks own a lot of bonds, and rising yields make those bonds worth less, which hurts their balance sheets even if they never sell

🏛️ With the Fed raising rates in September for the first time since 2023 (and 16 of its 19 officials expecting at least one more hike this year), continued pressure on rates and yields is hurting the banks and adding strain to private credit.

💸 Private Credit is in Rough Shape

💡 The second reason for the financial sector's downturn is private credit. As a refresher, private credit is when asset managers (instead of the banks) lend money directly to companies.

⚠️ These types of borrowers are often riskier, so when rates rise, their payments climb, and so do defaults.

🚪 Typically, private credit funds only let investors withdraw about 5% of the fund each quarter, and when more people ask for their funds, the fund pays out 5% and makes the rest wait.

👀 As we covered back in March (read our full article here), many funds have already started capping these withdrawals, and in Q3, requests blew past the cap again, with Blackstone's BCRED fund receiving requests for about 10% of its shares, while Morgan Stanley's North Haven fund had 11.4%, and Blue Owl's tech-focused fund had a massive 39%.

🔻 This is happening as the loans themselves worsen, with Fitch putting the U.S. private credit default rate at a record 6.3% in August.

📉 As a result, Blackstone ($BX) and Blue Owl ($OWL), two leaders in Private Credit, are down 18% and 23% over the past month, though Blackstone's president, Jon Gray, still expects things to turn around:

👀 But bonds and private credit aren’t the only factors at play… banks are also facing drying-up deals and a rotation into AI…

📊 But before we continue, a quick word from our other amazing sponsor this week, Global X Canada!

SPONSORED BY GLOBAL X CANADA
⚡️ Invest in the Companies Powering South Korea

⚙️ The AI boom depends on more than American technology giants. South Korea’s semiconductor manufacturers supply the advanced memory chips that help make it all possible. Beyond semiconductors, the country is home to major automakers, shipbuilders and defence companies supplying global markets.

📈 The Global X Korea KOSPI 200 Index ETF (KORX) puts this industrial economy within reach through a single ETF. KORX provides exposure to 200 large and liquid Korean companies, giving Canadian investors a straightforward way to broaden their portfolios beyond North America.

🏦 With holdings spanning technology, financial services and industrial businesses, KORX offers access to companies behind products and infrastructure used across key sectors. Its significant semiconductor exposure also makes it a way to participate in the physical buildout of AI.

📊 Discover how South Korea could fit into your portfolio.

^{*See the Global X disclaimer at the end of the newsletter}

TOP STORY CONT.
🏦 Financial Stocks Have Their Worst Month & What This Means For the Market

🧐 So, we’ve established that the bond market and rough private credit market are two factors at play… let’s look at two more:

🤝 Dried Up Deals

📉 The third reason is that higher yields are making dealmaking harder, and since banks and asset managers earn some of their biggest profits when companies merge, acquire, or list on the stock market, a slowdown in dealmaking can have a real effect.

📊 By the numbers, global M&A fell 41% from the prior quarter to $993 billion (the first quarter below $1 trillion since Q2 2025), with many IPOs delayed.

🗣️ Morgan Stanley’s global head of M&A, John Collins, tied it all straight back to the bond market (a growing theme), saying:

🚀 A Rotation Into AI

🤖 The fourth reason for financials’ rough month is that investors had somewhere better to go.

📈 Tech and Communication were the only S&P 500 sectors to gain in September, with chip funds like VanEck Semiconductor ETF ($SMH) up roughly 69% year-to-date, and AI-related stocks making up 45% of all retail trading volume on Blossom in September

🤖 Overall, it looks like with rates and yields rising, deals drying up and private credit looking shaky, investors are crowding into one of the few places that’s still making money: AI. And it’s not just financials that are being left out, as one analyst puts it:

🌍 But What Does This Mean For The Market?

⭐️ The strange part of all this is that while Financials were having their worst month in decades, the businesses continue to grow. JPMorgan's adjusted earnings per share rose 13% in Q2, Bank of America grew net income 28%, and Foran notes earnings estimates for financials are actually rising… which almost never happens in a bad year for the sector.

🤔 That's what makes this dip so unusual, and it's why Foran compares it to the dot-com era, when money also poured into a booming tech sector while other sectors were left behind.

👀 And if we look at history, there are two different stories we can tell:

• ⚠️ Warning Sign Story: The last time financials lagged this badly (1990), it came during a real banking crisis. And today's cracks are real too… record private credit defaults, gated funds, and 5%+ yields squeezing everyone who borrows.

• 🌈 Rotation Story: But in 1999, when financials lagged the market, it was just because the market was obsessed with tech. And when that obsession finally broke, the cheap, unloved sectors went on to lead the market for years.

🤷‍♂️ But whether this is a 1990 situation, a 1999 situation, or somewhere in between is the big question… and the good news is we’ll have more answers soon, with JPMorgan, Citigroup, Goldman Sachs and Wells Fargo all reporting earnings on Oct 13 and Bank of America and Morgan Stanley reporting on Oct 14.

🏦 If bank earnings keep growing while the stocks keep lagging, that’s more evidence that this is just a short-term rotation. But if credit cracks start showing up in their numbers, the warning-sign story starts looking a lot more real. Either way, I’ll be sure to keep you updated 🫡

🙏 But that’s enough for one Sunday! Thanks for reading to the end - let’s wrap up with some of the best posts on Blossom this week!

FROM THE BLOSSOM COMMUNITY
⭐️ Featured Posts of the Week

👇 Click to see the full post!