DOJ Sues Apple After Massive $2 Billion EU Fines! Is This the End?

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Market News and Short-Term Predictions

Apple can't catch a break when it comes to regulators coming after them! It makes sense though, when you're one of the biggest companies in the world, you'll get a bit of a target on your back.

On March 4, the European Commission fined Apple 1.84 billion euros ($2 billion USD), finding that Apple had abused its dominant position through its control over the App Store in imposing anti-steering provisions on providers of music streaming apps.

And then today it comes out that the DOJ and 16 attorneys general are suing the iPhone maker for violating antitrust laws. On the back of the news, the stock shed $113 billion in market cap!

The American suit, filed Thursday in New Jersey federal court, accuses Apple of blocking rivals from accessing hardware and software features on its popular devices.

The US lawsuit alleges that Apple has used its power over app distribution on the iPhone to thwart innovations that would have made it easier for consumers to switch phones. The company has refused to support cross-platform messaging apps, limited third-party digital wallets and non-Apple smartwatches, and blocked mobile cloud streaming services, according to the DOJ.

Now I get why investors panic around these lawsuits, but I can't take these too seriously when at the end of the day there is back and forth and then the company ends up settling for a couple of billion dollars. This may sound insane, but when the company is sitting on $73 billion in cash on its balance sheet and the market cap dropped $100s of billions on the news, a few billion as a fine to continue business as it is a nothing burger.

I suspect once again, this will pass. Unless the plan is for the government to actually force Apple to stop operations over it, a fee will be paid and everyone will be happy. If I'm an Apple shareholder, I'm not worried.

Another big non-news event this week is around the Fed deciding to keep rates steady to no one's surprise. But they did reiterate that they expect 3 rate cuts in 2024. The market liked that as we continued to hit all-time highs. Below is the updated prediction for rates through 2026 which shows a consensus that federal fund rates will come down to around 3%.

It will be more interesting as the year goes on because June is when the market will actually expect action of those cuts vs. keeping things steady.

Lessons to Be Learned

Let's take a look at Chipotle's recent headline-making decision: a 50-to-1 stock split. This move provides a perfect learning opportunity, so let's break it down and understand its significance.

What is a Stock Split?

Firstly, a stock split is where a company divides its existing stock into multiple shares to boost the liquidity of the shares. Although the number of shares increases, the total dollar value remains the same, meaning the split doesn't change the company's market cap or the value of individual investments.

Chipotle's 50-to-1 Stock Split Explained

Simply put, if you owned one share of Chipotle before the split, you now hold 50 shares. However, the total value of your holdings remains unchanged. Pre-split, if one share was worth $1,000, post-split, each new share would be priced at $20, keeping your total investment constant.

Why Do Companies Split Stocks?

• Improved Liquidity: More shares mean more trading. A lower share price makes it easier for more investors to buy shares, enhancing liquidity.

• Psychological Appeal: Lower-priced shares can attract investors who might be hesitant to invest in high-priced stocks, even though the company's overall value and the proportional investment value don't change.

• Signaling Confidence: Often, companies split their stock when they believe their share price will continue to rise. It's viewed as a signal of confidence to the market.

For all those reasons, that is why $CMG probably popped 6% on the news.

Implications for Investors

The split can indirectly influence the stock's market performance due to the increased liquidity and potential heightened interest from investors attracted by the more affordable share price.

Key Takeaways from Chipotle's Move

• Chipotle's 50-to-1 split dramatically increased the number of its outstanding shares, making it more accessible to a broader range of investors.

• The move is a testament to Chipotle's growth and management's confidence in the company's ongoing potential.

In conclusion, while a stock split like Chipotle's doesn't alter the fundamental value of your investment, it plays a significant role in the stock's market dynamics and perception.

Portfolio Update

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