A daily market update from FS Insight — what you need to know ahead of opening bell

“The market cycle will once more prove to be the human-nature cycle; its economic background will have changed, but not its basic character nor the consequences of its character.” — Benjamin Graham

Overnight

Taiwan hit by strongest earthquake since 1999 (FT)

E.U. exits winter with record-level gas storage (FT)

U.S. job openings held steady in February (BBG)

Tesla quarterly deliveries decline for the first time in nearly four years; shares down 5%+ for the day (RT)

Intel discloses a $7B operating loss in foundry business (CNBC)

Disney investors look beyond board battle as ‘cheap’ stock soars, up nearly 35% in 2024 (BBG)

Endeavor Group, controlling shareholder in WWE, agrees to $13 billion buyout from Silver Lake (BBG)

Hunterbrook Media, which investigates companies using public information and then trades/sues to gain from it, launched Tuesday (HB)

Looking like the twin of the Tesla Model 3, Xiaomi’s first electric car has a six-month waiting list in China (TR)

WeWork, 90% done restructuring its real estate portfolio, predicts $8 billion in rent savings after bankruptcy ends (BBG)

Replit, a Silicon Valley AI coding startup, launches new product in race for AI coding assistants (Semafor)

Business schools going all in on AI (WSJ)

U.K. PE dealmakers earned $6.3B in carried interest in 2022 (FT)

All Citadel strategies are up YTD (RT)

VC reckons with end of ‘megafund’ era (FT)

Fed officials see three rate cuts ‘reasonable’ this year (RT)

Dividends outstripped cash flows at Blackstone REIT (FT)

Trump sued Truth Social co-founders out of stock ownership (CNBC)

CalPERS named ex-New Zealand Super Fund exec as CIO (FT)

UBS named three co-heads of Americas ECM (RT)

Ex-Gucci CEO Bizzarri sets up investment company (RT)

S&P 500 made up 27% of 2023 equity ETF flows (FT)

FDIC is probing BlackRock and Vanguard over huge U.S. bank stakes (WSJ)

Hong Kong suspends trading of several China developers’ shares (WSJ)

Iowa-LSU game was FanDuel’s biggest-ever women’s sports betting event (CNBC)

Honeywell International is weighing a sale of its PPE unit amid fading post-Covid demand, which could fetch over $2B (BBG) 

Blue Owl Capital will buy Kuvare Asset Management in a $1B deal (WSJ)

Authentic Brands Group agreed to acquire athletic apparel label Champion from Hanesbrands for ~$1B (YF) 

Hong Kong-based alternative asset manager PAG purchases a logistics center in central Japan from real estate developer Hines for over $400M (BBG) 

Digital-asset investment firm Republic purchases asset management firm GoldenTree’s $150M AUM crypto subsidiary GoldenChain (BBG) 

Goldman Sachs’s Petershill unit, which specializes in buying stakes in alternative asset managers, agreed to acquire a 30-40% stake in opportunistic credit firm Kennedy Lewis Investment Management (BBG) 

Pakistan is seeking bids for a majority stake in unprofitable national carrier Pakistan International Airlines (BBG) 

Yahoo acquires Instagram co-founders’ AI news platform Artifact (RT)

HSBC exploring the sale of its various Germany businesses including its wealth-management, custody and fund administration units (BBG) 

First news

• The DOJ’s case against Apple may be just as orthogonal to true consumer choice as was the case against Microsoft a generation ago.

Chart of the Day

MARKET LEVELS

MORNING INSIGHT

Good morning!

Ever since the March ISM manufacturing showed somewhat “hot” prices paid – coupled with the creeping rise in oil – equities have seen an immense two days of selling pressure. The S&P 500 and Nasdaq fell -1% Tue. and the Russell 2000 was down 2%. During this time, long-term yields have crept higher, the VIX gained >20%, and pundits are now expecting the Fed to make even fewer than 3 cuts in 2024.

To us, the selling over the last 2 days is setting up another “buy the dip” moment. In fact, this turnaround is likely to start Wed 4/3. We see 5 reasons to “buy this mini-dip”.

Click HERE for more.

TECHNICAL

Tuesday’s gap down to multi-day lows for SPX on the heels of the breakout in bond yields still failed to do material damage, and as of 4/2’s close looks to be holding the level of trendline support from the uptrend line created by the early January 2024 swing low.

While nine sectors finished down on the session, with breadth finishing at around 3/1 negative, SPX managed to show a late-day rally that helped to recoup some of the early selling. Only Discretionary, REITS, Healthcare, and Technology finished down more than 1% on the session, while Energy was higher by nearly +0.80%. However, we view the late -ay strength as constructive.

Overall, while Tuesday’s SPX price action did temporarily trade intra-day under SPX 5200, the index successfully rallied to close the day over 5200 and hold its larger uptrend line. Bottom line: in the bigger scheme of things, the two-day decline has not changed any of the current thinking about Equities having a good likelihood of rallying into mid-month. Support on any further weakness should come in near 5160, but likely proves short-lived. 

Click HERE for more.

CRYPTO

In our latest video, we discuss crypto’s reaction to rising rate expectations and expansionary PMI, along with what the Coinbase premium is signaling.

Click HERE for more.

FIRST NEWS

The DOJ: Phoning It In. In United States v. Apple, the Department of Justice, 16 states, and the District of Columbia have filed a lawsuit that claims Apple has abused its market position under the Sherman Antitrust Act. The release can be found here, the filing here.

Short of a dramatic case dismissal (which Apple will certainly file for, but which is hardly likely, given how much is riding on the case for the DOJ) or dismantling by a judge, the filing is meant to stir populist emotion and generate a base of public awareness and support for the case while providing just enough substance to limp along on this misguided legal journey.*

These once-in-a-generation cases define the careers of litigators and regulators, as well as the law students aspiring to one day land such a Leviathan of a case, in whatever capacity. It is human nature to seek a frame of reference and many will wonder whether this is at all like the Microsoft case of a quarter-century ago.

That case was indeed gargantuan. Attorneys for Microsoft were hired straight out of law school to work on it (the first FTC inquiry happened in 1990) and retired from Microsoft having worked only on that case (which went on, arguably, i.e. including extensions of Microsoft’s obligations under the settlement with the government, until 2009). It is true that today there is no bigger target than Apple, and that the two cases do have similarities, but the facts and context are unique, just as Microsoft’s case was not like AT&T’s, which itself differed from IBM’s, which surely wasn’t like Standard Oil’s. Still, the law is based on precedent and, by definition, what happened before plays a critical part in every case even if patterns and details may differ.

In its generation-ago heyday, Microsoft had 90%+ of the PC market. It’s arguable how permanent that would have been, but history has shown Microsoft to be 20/20 in its assessment of the technology industry. As we sit here today, the PC and PC servers are the old market, Office is a massive but uninspiring business, and the internet has created a whole new generation of winning companies. This fragility of technology leadership likewise applies to Apple and is indeed deeply ingrained in the company’s own experience as the original leader in the PC space. Unlike that of Windows in the Microsoft antitrust case, not only is Apple’s position in the mobile-phone market not a monopoly or even a vastly dominant share; the DOJ has to stretch to define a ‘performance smartphone’ market segment so as to stretch Apple’s share of it.

The DOJ claims that “Apple has used one or both mechanisms (control of app distribution or control of APIs) to suppress the following technologies, among others” which includes:

• “Suppressing Super apps”
• “Suppressing cloud streaming game apps”
• “[P]rohibiting third-party apps from sending or receiving carrier-based messages”
• “[S]uppressing key functions of third-party smartwatches”
• “[D]enied users access to digital wallets”.

The problem for the government’s case is that, uniformly, all these are product choices entirely consistent not only with what other companies do (e.g. Google’s Android + Samsung) but also with Apple’s history. A key point of U.S. antitrust law that the DOJ must satisfy is proving that Apple has a monopoly and that it acted illegally to maintain the monopoly. When a company exhibits consistent behavior as it rises from 0% to 50% market share, the burden will be on the DOJ to argue that the same behavior is now anticompetitive in a specific legal sense. In other words, a lot of what the DOJ will be arguing is that the same product choices Apple had made to improve the iPhone in terms of security, privacy, reliability, battery life, and other factors since the introduction of the App Store (when the phone was at 10% market share) are anticompetitive today. The mere existence of another type of smartphone (or of ideas for how another type of smartphone should be designed) is not enough to prove that Apple is being anticompetitive. Such alternative designs are not about what one might do today, but what Apple has been doing since it launched its product, acting consistently.

Precedent, mentioned above, works in every direction, and bad regulatory precedents, instead of going the way of ill-designed genes and abstracting themselves from the pool of possible behavior, stick around in hopes of returning. What the DOJ is trying to do is turn the iPhone into Android – precisely what the marketplace does not want – just as the DOJ tried to remove a browser from Windows, which was exactly what the marketplace did not want.

One can see shades of the same argument in this week’s filing, which simply claims, “In the end, Apple deploys privacy and security justifications as an elastic shield that can stretch or contract to serve Apple’s financial and business interests.” This is a way for the DOJ to say: ‘anytime Apple says that something is necessary for security, our response will be that it is just a shield and not a legitimate goal’, just as every time Microsoft pointed out that operating systems integrate new technology the DOJ said that, far from making a point about what operating systems do, Microsoft was instead ‘bundling’.

Even from a purely pragmatic, and not fairness- or logic-based point of view, it should be noted that, just as with the Microsoft case, the Apple case is being filed on what is clearly the tail-end of the joint innovation/adoption curve for smartphones. From an innovation perspective, this is the least-logical time to file a case because little will change in phones while the court is figuring out how to fix them, yet, outside the realm of phones, the world will change enormously. It’s already changing.

The world is moving on to AI, glasses, and other devices. While the Microsoft case was providing the bookends (and contents) for the careers of many a lawyer, the cloud, mobile, tablets, ARM, GPUs, and other technologies – none of which were part of that case – rose to prominence. All of these technologies turned out to be challenges for Microsoft in varying degree, but they had little to do with Windows then or now.

By the time those young lawyers defending the Apple of today find themselves on the cusp of retirement, Apple’s lineup of products may be hardly recognizable to the consumers of today, and yet the case – which seeks to freeze one product line in time – may drag out, in one form or another, for years and years. HCS

^{* The effort is as much political as it is legal, hence the lack of footnotes or citations.}