Soft Landing Still The Narrative & Stock Of The Week: Apple (AAPL)

Resisting the temptation to complain about Friday’s modest pullback, it was a terrific five days of equity trading for those of us who are long.

Indeed, the handsome advance on the week finally moved the average total return for Russell 3000 constituents into the green on the year as the small-cap, capitalization-weighted Russell 2000 index has been a laggard, up just 2.5% thus far in 2024.

Interestingly, the catalyst for the move higher in stocks last week was the Federal Open Market Committee’s decision to leave its target for the Fed Funds rate unchanged at a range of 5.25% to 5.50%.

The FOMC Statement indicated that “Inflation has eased over the past year but remains elevated,” and “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%.”

The bond market liked what it heard, with the 10-Year U.S. Treasury jumping in price and dipping in yield and futures wagers continuing to target a year-end Fed Funds rate (4.48%) well below current levels.

Federal Reserve Board members and Federal Reserve Bank presidents also offered a bump in their 2024 estimate for GDP growth to 2.1%. This is up from 1.4% three months ago, with modestly higher Core PCE inflation of 2.6%, above the prior forecast 2.4%.

This seemingly supported traders’ belief that a so-called soft landing is in the cards for the U.S. economy, a notion which Chairman Jerome Powell did nothing to dispel at his Press Conference that followed the latest decision on interest rates.

STOCK OF THE WEEK: APPLE (AAPL)

The Department of Justice (DOJ) along with 16 state Attorneys General filed a lawsuit against Apple over what the DOJ said was a case about “freeing smartphone markets from Apple’s anticompetitive and exclusionary conduct and restoring competition to lower smartphone prices for consumers, reducing fees for developers and preserving innovation for the future.” At face value, the suit isn’t surprising given how much money Apple makes each year from the App Store and the tight control the company maintains over all parts of the customer experience.

The Complaint is 88 pages long including signatures, and the plaintiffs offered several good points in the filing: i.e. that Apple could play nicer with software developers, content owners and apply the rules more fairly than it presently does. However, large chunks were fundamentally wrong or applied a revisionist history that flatly ignores the actual reasons for Apple’s success.

One such example was that Apple’s early fortunes from its iPod hinged on its ability to take share from Microsoft while constrained under its own antitrust ruling. The filing seemingly ignored the fact that iTunes never made it to Windows operated PCs until 2003, two years post the iPod’s debut.

While I expect Apple’s legal team is hard at work picking apart the complaint, the court system is always an unknown quantity when it comes to outcomes, and it is unlikely that the States and DOJ are going to be looking quickly for a settlement.

Still, in Apple’s previous spats, it has been able to reach agreements that allow the company to maintain its business model. So, I expect a similar resolution here, where Apple will have to make changes, but they won’t have an enormous impact on the Apple ecosystem…nor will it do much to dampen enthusiasm for users.

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