Ripe for rate cuts?

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These reports make it more likely for the central bank to start cutting interest rates this year. We will get a new inflation reading this morning. If it continues to cool down, the combination of a cooling inflation and an economic slowdown makes it ripe for rate cuts. ECONOMIC REPORT #1: Jobless claims. Recurring applications for jobless benefits jumped to the highest level since the end of 2021. So, people are having a harder time finding jobs. The total number of continuing claims was 1.84 million in the week ended June 15. While the number is at the highest level in many months, it remains far below the historical average. The 20-year average prior to the pandemic was at about 2.9 million for continuing claims. In other words, the current level is nearly two times lower than the historical average. That shows how hot the labor market is. (Source: Bloomberg) Regardless, the rise in continuing jobless claims shows that the economy is starting to cool down. - “The increase in continuing claims for jobless benefits will likely add upward pressure to the unemployment rate. Even as initial claims inched down for a second straight week, we think it matters more that an increasing number of workers are languishing,” said Bloomberg economist Stuart Paul. ECONOMIC REPORT #2: Factory orders. Orders placed with US factories for business equipment declined in May. (Economists didn’t expect a decline.) The 0.6% decline in the value of core capital goods orders (excluding aircraft and military hardware) was tied for the biggest decrease this year, according to the new report from the Commerce Department. The data, however, is volatile. There have been declines in the previous readings, as you can see in the graphic below: (Source: Bloomberg) So, investors will watch for the next few readings to see if businesses are becoming more hesitant with making expansion plans due to high borrowing costs and demand concerns. ECONOMIC REPORT #3: Pending existing-home sales. Things weren’t pretty with this data. A gauge of contact signings from the National Association of Realtors fell 2.1% to 70.8 last month. It was the lowest reading in data going back to 2001. Economists whiffed on this data. They expected a 0.5% increase. So, the real estate market is down due to rising inventory and lower demand. Lower mortgage rates could spur demand in buying homes — especially when the labor market is still robust. (Source: Bloomberg) It may indicate that buyers think home prices are too high. The pace of home price appreciation could slow down over the next few months. Lower mortgage rates will be important to make homes more affordable to Americans. - “The market is at an interesting point with rising inventory and lower demand,” NAR Chief Economist Lawrence Yun said in a statement. - “Supply and demand movements suggest easing home price appreciation in upcoming months. Inevitably, more inventory in a job-creating economy will lead to greater home buying, especially when mortgage rates descend.” What’s the takeaway? Wall Street is becoming more convinced that the economy is slowing down. The central bank looks more likely to start cutting interest rates this year. - “Continuing claims inched higher and are now the highest since late 2021 — sending a warning sign that the labor market could be softening,” said Jeff Roach at LPL Financial. - “We expect both consumer and business activity to slow in the latter half of 2024, giving the Fed ample opportunity to begin cutting rates later this year.” We will get the latest PCE reading this morning. Economists expect it to post the slowest pace this year. If that’s the case, it will only boost the odds of rate cuts this year since the economy is starting to slow down. Top Growth/Value Stock To Own Right No Today’s Stock Pick: Sezzle Inc. (SEZL) There’s no doubt that the Buy Now, Pay Later (BNPL) space is exploding. How hot is it? The BNPL market is expected to grow at a CAGR of 24.4% through 2033, according to a report by Nova One Advisor. That’s a fast-growing market! Sure enough, it has captured the attention of Big Tech companies like Apple. There are major players like Affirm, Klarna and Afterpay. Sezzle is a lesser-known player in the space. The market is large enough to absorb multiple competitors, so Sezzle offers a growth/value play in the exploding market. (Source: Sezzle) The insiders own about 50% of the company, so they are aligned with the shareholders. It shows in their capital allocation decisions. They executed share buybacks and have become profitable. But first, let’s talk about its flagship product. It is called Pay in 4. Consumers can pay just 1/4 of the purchase price at checkout and pay the remaining amount over the next six weeks. Sezzle pays the merchant in full upfront. Sezzle makes money by charging fees to merchants (typically a certain percentage of the order value) and a fixed fee per transactions. Consumers also have the option to pay in full, pay in two or pay over the long-term. (Source: Sezzle) What’s more, Sezzle is the only BNPL in North America to offer credit reporting optionality through short-term Pay-in-4 installments. So, consumers can build their credit scores by reporting these payments. Or they can choose not to report them. (Source: Sezzle) A young market: The BNPL remains a young market. It represents less than 2% of North America’s total commerce transaction value. Credit card has 40% of the market. There’s a plenty of growth ahead. Sezzle has less than 1% of North America’s total BNPL market, giving it a major opportunity to gain market shares. (Source: Sezzle) Profitability: Sezzle is the only pure-play BNPL that achieved positive GAAP net income for every quarter since 3Q22. Net income margin has soared in the last four quarters — going from just 3.3% (2Q23) to 17% (1Q24). (Source: Sezzle) Its recent quarter enjoyed a total income growth of 35.5%, and return on equity was incredibly high at 31%. (Source: Sezzle) Bottom line: Sezzle is a dark-horse play on the exploding BNPL market. It is profitable. Revenue growth is strong. The market is still young and growing fast. This is a good stock to own for the next decade.   [EARN WHILE YOU LEARN! JOIN OUR FREE LIVE TRADING SESSION!](     © All Rights Reserved, Trade Alliance [Unsubscribe]( | [Manage Preferences](