Investor's Playbook

📖Today’s Agenda

• Stock Market : Markets are pricing in a March rate cut but not everyone is buying it

• Entrepreneurship : TOP 3 AI TOOLS OF THE WEEK

• Personal Finance : This Is the Ugly Truth Behind Buy Now, Pay Later Plans

📈Stock Market

Markets are pricing in a March rate cut but not everyone is buying it

The Fed pivot has markets increasingly expecting rate cuts to begin earlier in 2024. These cuts are also anticipated to be much deeper than what the Federal Reserve forecast for next year.

As of Thursday, markets have priced in a roughly 80% chance of the first rate cut coming in March, per the CME Fed Watch Tool. This falls in line with the latest forecast from Goldman Sachs, which in a week's time shifted its expectations for rate cuts from the fourth quarter of 2024 to March.

Goldman cited the Fed's commentary that inflation will fall faster than previously anticipated, along with recent inflation data that was cooler than expected.

"In light of the faster return to target (inflation), we now expect the FOMC to cut earlier and faster. We now forecast three consecutive 25bp cuts in March, May, and June to reset the policy rate from a level that the FOMC will likely soon come to see as far offside," Goldman Sachs chief US economist David Mericle wrote in a research note on Thursday.

On Wednesday, the Fed released its latest Summary of Economic Projections (SEP), including its "dot plot," which maps out policymakers' expectations for where interest rates could be headed in the future. The dots showed Fed officials see 75 basis points of interest rate cuts next year, 25 more basis points of cuts than previously forecast.

The central bank sees core inflation peaking at 2.4% next year — lower than September's projection of 2.6%.

Investors took this news a step further though. Prior to the November Fed meeting, markets had priced in just three rate cuts for next year, per Bloomberg data. Now, after two Fed meetings left the benchmark interest rate unchanged and a more promising outlook on inflation emerged, investors see seven rate cuts coming by January 2025.

Still, economists aren't all in agreement with the markets' aggressive pricing moves.

EY Chief Economist Greg Daco has been warning that just because a soft landing is in sight, it doesn't mean the US economy is in the clear.

Daco noted that the Fed's acknowledgment that it's closer to implementing cuts rather than another hike was "very important," but it doesn't fully justify how market expectations have moved.

"We have to be a little bit careful with the market pricing of rate cuts," Daco said. "The Fed is not going to be in a hurry to cut rates very rapidly, unless there is a recession... So the euphoria about this soft landing and this environment where we're not going to see any slowdown, perhaps is overdone.

Other economists agree with Daco. Wells Fargo, Morgan Stanley and Deutsche Bank are still projecting rate cuts to begin in June.

Wells Fargo's team of economists view June as the starting point for reductions because they believe the central bank will need to keep rates high amid "still solid employment growth and elevated inflation." But eventually, they see the restrictive stance from the Fed paving the way for cuts.

🎯Entrepreneurship

TOP 3 AI TOOLS OF THE WEEK

1. illostrationAI

TEXT TO IMAGE

illostrationAI is an AI Tool that enables users to create beautiful illustrations in seconds. It is your perfect go-to and all-in-one solution for creating stunning visuals without any need of designing or drawing skills. The tool uses a library of different AI-supported styles to choose from and you can quickly describe the image you want to draw or edit. With its upscaling AI feature, you can make further improvements to your illustrations that you cannot achieve manually.

2.Stylized

PRODUCT MOCKUP GENERATOR / E-COMMERCE

Stylized's advanced AI technology can be used for a variety of projects including branded content, e-commerce, fashion, photography, and social media. This handy tool makes it easier than ever to showcase your product and put your own unique stamp on any project. With Stylized, you'll be able to create stunning visuals that will captivate viewers and help generate more interest in your product. Whether you're a professional or amateur graphic designer, Stylized has something for everyone.

3. Spiritme

AI AVATAR GENERATOR

With Spiritme, video production is simple and efficient. It's a great tool for streamlining processes and creating personalized videos with digital avatars. Businesses, filmmakers, video editors and other digital content producers can greatly benefit from using Spiritme— with it, you can create impactful videos faster and with exciting new capabilities.

💸Personal Finance

Article by Robin Hartill, CFP

This Is the Ugly Truth Behind Buy Now, Pay Later Plans

If you're short on cash this holiday season, you may be tempted to use a buy now, pay later plan. These plans let you split a purchase up into four interest-free installment payments that you typically make biweekly. Most buy now, pay later plans don't require a credit check.

But here's the dark side of buy now, pay later (BNPL) plans: Retailers love these plans because they know you're likely to spend more.

The truth about buy now, pay later plans

When you use a buy now, pay later service like Klarna or Afterpay, you're technically getting an installment loan. But instead of making money off the interest you pay -- which is what happens with a traditional loan -- BNPL lenders earn the bulk of their payments from merchant fees. Shopify reports that these fees typically range from 2% to 8% of overall transaction costs.

Retailers are happy to foot the bill because they know that customers spend more when they use BNPL. One study found that 70% of customers admitted to spending more when they paid with buy now, pay later. Research also shows that BNPL makes you more likely to make a purchase you're on the fence about. When you do make a purchase, the amount you spend is often higher.

In a paper called "Buy Now, Pay (Pain) Later," researchers from the University of Washington, University of California-Irvine, and Singapore Management University, offer several explanations for why overspending is so prevalent with buy now, pay later plans:

• Easy access to credit is generally associated with people spending more.

• BNPL lenders are more willing to extend credit to risky borrowers because they earn commissions from retailers.
  

• Since BNPL services rarely report to credit bureaus, customers can often borrow more than they can afford.

The same research found that customer usage of BNPL services is associated with an increase in overdraft fees, credit card interest rates, and late fees.

That finding is especially alarming because customers with shaky finances are more likely to use BNPL. The New York Survey of Consumer Expectations Credit Access Survey found that 43% of BNPL customers have credit scores of 620 or lower, while 37% reported being at least 30 days delinquent on a bill at some point in the last year.

Using buy now, pay later can be especially appealing to customers with bad credit because you can typically get approved without a hard inquiry to your credit report. But keep in mind that these plans won't help you build credit. Whether you're building credit from scratch or trying to improve a bad score, you'll need a credit card or loan that reports your payments to the credit bureaus.

While BNPL providers won't report your on-time payments to the bureaus, some do report missed payments. This means that BNPL is unlikely to help your credit score, but it could hurt your credit score.

When using buy now, pay later makes sense

Buy now, pay later comes with real risks, but it's possible to use these plans without getting buried in debt or hit with fees. If you're going to use a BNPL service, follow these tips to avoid risking your personal finances:

• Only use BNPL for purchases you already planned to make.
  

• Make sure you understand when each payment is due and that you'll have sufficient cash in your bank account to cover the payment.
  

• Read the details of the payment plan so you're clear on whether you'll be charged interest, what happens if you're late on a payment, and whether the service reports to the credit bureaus.

Finally, consider the alternatives. If you're eligible for a 0% APR credit card, this is often a better option than BNPL. You'll get the zero-interest perk that many BNPLs offer, plus you'll face fewer headaches if you need to make a return or dispute a charge.