🎙️ Breaking Up Apple

The IPO market is back, baby! 🥂

Reddit, known as the “front page of the internet,” cashed in on that reputation; it priced its shares at the top of its target range (between $31 and $34 per share), allowing the company to raise almost $750 million.

Even better: Once trading opened to the masses, Reddit’s stock jumped another 50% — a strong signal that investors once again have an appetite for new stock listings, especially for the first major social media company to go public in five years.

💭 By the way: Yesterday, we offered the next 20 sign-ups for We Study Markets Pro (30-day trial), a free copy of Howard Marks’ timeless book, Mastering the Market Cycle. We’re extending that offer again today

Sign up for our Pro market research and claim your copy of Mastering the Market Cycle.

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the biggest stories in markets:

• DOJ sues Apple over iPhone monopoly

• Is the era of 5% returns on cash ending?

This, and more, in just 5 minutes to read.

Chart of the Day

In The News

🍎 The U.S. Government Sues Apple Over Smartphone Monopoly

Is Apple a monopoly? U.S. regulators think so, at least in the smartphone space.

On Thursday, the Department of Justice launched a landmark case against Apple, accusing the company of suppressing competitors across several domains, from smartwatches to messaging services and gaming apps.

Feature, not a bug: For Apple, the stickiness of its products is an intended feature derived from carefully designed overlapping product ecosystems—your Mac, iPhone, iPad, and Apple Watch are all seamlessly interconnected.

• From blue text messages to a synchronized collection of your photos taken across devices, Apple’s technology often aims to make third-party services unnecessary. Correspondingly, Apple’s business model is often known as a “walled garden.”

The price of convenience: To many users, unrivaled convenience is worth more than more innovative tech products lacking the same immersive ecosystems.

To regulators, it’s a sign of Apple’s extensive “market power,” an economic and legal term for when a company can raise prices far beyond what would be tolerated if there were more competitors.

• Apple’s rebuttal argued, “This lawsuit threatens who we are and the principles that set Apple products apart in fiercely competitive markets.”
  

• “If successful, it would hinder our ability to create the kind of technology people expect from Apple — where hardware, software, and services intersect.”

Why it matters:

Market power litmus test: While “market power” abuses against consumers are less tangible than obvious price gouging, it’s hard to argue against Apple’s dominance; how many of us, especially those who have had iPhones for over 15 years, would switch away from Apple if they raised prices?

The lawsuit alleges that Apple’s “astronomical valuation” has come at the expense of consumers, developers, and rival phone makers, saying, “Each step in Apple’s course of conduct built and reinforced the moat around its smartphone monopoly.”

• U.S. Attorney General Merrick Garland defines monopoly power as “the power to control prices or exclude competition.”
  

• On that point, consumer costs are often subtle, manifesting as a lack of alternatives (blocking cross-platform messaging apps, limiting third-party wallet apps) and even punishment for using alternatives (ever tried to add an Android “green text” user to an iPhone group chat? And don’t bother trying to use your Apple Watch with a new Android).

What’s next: If the DOJ wins, the government hasn’t ruled out breaking up Apple, similar to how, in the past, firms were pressured to split up into different companies (AT&T) or make their products more compatible with competitors (Microsoft).

• Still parsing through the suit and processing its ramifications, investors initially responded with concern, pushing Apple’s stock down more than 4% on Thursday (and nearly 8% YTD.)
  

• Apple holds about 64% market share for U.S. smartphones, versus 18% for Samsung.

Read more

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💸 The Era of No-Brainer 5% Returns on Cash Is Ending?

Could the days of sitting on cash earning 5% be over soon? 

Certificates of deposit (CD), money-market funds, and other cashlike investments have recently offered returns over 5% since the Federal Reserve started jacking up interest rates two years ago (almost to the day).

• But the central bank said Wednesday it expects to cut rates three times this year. That would presumably end hopes of locking in 5% returns for things like CDs over 12 months.

The top rates are shorter-term: While three-month CDs pay about 5.5% annually, CDs stretching two years offer only about 5% or less, according to Bankrate data. 

The result: Investors are still sitting in cash, but the terms are shorter. Roughly 70% of high-rate CDs opened last month lasted under a year. 

• As one managing director commented, “Most consumers look at the rate first and the term second,” but the term will be much more important once the Fed cuts rates. 

Bragging rights: For years, nobody talked about earning anything in cash because, well, you really couldn’t. Many investors reasoned that they could just park in high-quality equities and earn 10%-plus returns, which many have done for decades, but the stock market is no replacement for savings accounts. 

• It all changed two years ago. Inflation persisted, the Fed started hiking rates, and stocks and bonds fell sharply. All of a sudden, cash products became something of a conversation at backyard barbeques and post-work happy hours.
  

• Such conversations went something like this: “You’re only getting 4%? Ha, I’m earning over 5%!”

Why it matters:

Two years ago, the flight to money-market funds reflected investors’ fear of more stock slides and the appeal of 5% returns on a nearly risk-free product. 

Even the failure of several regional banks last year wasn’t enough to spook folks out of broadly allocating more to cash, whether in bank accounts or into money-market funds, which now have a record $6.5 trillion in assets. Their average rate peaked at 5.2%. 

• According to Bankrate data, about 60% of all CDs consumers bought last month yielded over 5%, and nearly everyone has been earning over 4.5%. 

The bottom line: Stocks, gold, and bitcoin have been on a tear over the past 15 months, driving many investors to move their money out of cash-like investments. A few Fed cuts might further propel that trend. 

Read more

More Headlines

🏀 How ESPN execs plan to survive the death of cable

💥 Reddit prices IPO at $34 per share in 1st major social media IPO since 2019

👀 See video of first human Neuralink user demoing the technology

💪 The factors driving America’s productivity boom beyond AI

🪧 Realtors are nervous: New ruling on commissions could be “the worst thing ever” for their livelihoods

💸 Former President Trump stands to earn $3.5 billion windfall from stake in Truth Social

Quick Poll

Yesterday, we asked: I think bitcoin has already hit its peak for 2024…

— Most readers believe the peak for the year isn’t yet here. “Institutions are truly finally here, halving, FOMO, asset managers will start to recommend to all clients.”

— Commented another bull, “The bears who think the ATH is already behind us probably also declared the US ETF approval as priced in at sub 50k price levels.”

— Wrote another, “The greed cycle is just getting going again.”

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But heads up: ceilings may be shattered. 

See you next time!

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