Despite a modest pullback on Friday, it was a positive week for equity trading, with the average total return for Russell 3000 constituents moving into the green for the year. The small-cap, capitalization-weighted Russell 2000 index has been a laggard, up just 2.5% in 2024. The catalyst for the stock market’s move higher last week was the Federal Open Market Committee’s decision to leave the Fed Funds rate unchanged at 5.25% to 5.50%. The FOMC Statement highlighted that inflation has eased over the past year but remains elevated, and the Committee does not expect to reduce the target range until it has confidence that inflation is moving sustainably toward 2%.
The bond market reacted positively to the FOMC’s decision, with the 10-Year U.S. Treasury price rising and yield decreasing. Futures wagers are targeting a year-end Fed Funds rate well below the current levels. Federal Reserve Board members and Federal Reserve Bank presidents raised their 2024 estimate for GDP growth to 2.1%, up from 1.4% three months ago. They also predicted slightly higher Core PCE inflation of 2.6%, above the prior forecast of 2.4%. This reinforced traders’ belief in a potential soft landing for the U.S. economy, a notion that Chairman Jerome Powell did not dispel during his Press Conference following the interest rate decision.
The stock of the week was Apple (AAPL), which faced a lawsuit from the Department of Justice (DOJ) and 16 state Attorneys General. The lawsuit accused Apple of engaging in anticompetitive and exclusionary conduct in the smartphone market, impacting consumer prices, developer fees, and innovation. While the plaintiffs made some valid points about Apple’s treatment of developers and content owners, there were also inaccuracies and a revisionist history in the filing. Despite the uncertainty of the court system, Apple has previously reached agreements in similar disputes that allowed it to maintain its business model. It is expected that Apple will make changes as a result of the lawsuit, but it is unlikely to have a significant impact on the Apple ecosystem or user enthusiasm.
Apple’s legal team is likely working on responding to the complaint, but the outcome of the lawsuit remains unpredictable. While previous disputes have ended in agreements that allowed Apple to continue its operations, the current lawsuit may require some adjustments from the tech giant. Ultimately, the lawsuit is not expected to have a major impact on Apple’s business or the enthusiasm of its users. For more detailed market commentary, including analysis for AAPL and other stocks, readers can check out The Prudent Speculator for free stock picks.
