Housing = the inflation headache

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April’s consumer price index will take the spotlight this week when it is released on Wednesday. It will reveal whether the Federal Reserve will have a breathing room in cutting interest rates. The economy is showing signs of a slowdown, so Wall Street has racked up bets for rate cuts this year. A September rate cut is becoming a popular bet. But the central bank will need inflation to come down in order to do that. Falling oil prices may end up a huge help to the Federal Reserve, as it could cool inflation in the next reading. Housing costs have been a big headache for inflation. It is one-third of the consumer-price index and around one-sixth of the price index of personal-consumption expenditures. In the graphic below, you can see how housing has been largely unchanged for its contribution to core PCE inflation. Before the pandemic, its contribution was tiny. (Source: WSJ) There was a boom in new apartment buildings, so it helped rents to decline modestly in the last few readings. However, most leases are signed with one-year contracts, so the changes are very, very slow. Services also contributed to inflation. There are some signs of stickiness (as you can see in the graphic). So, it may take a while for inflation to come down to the 2% target. Regardless, the strong earnings season had been the catalyst behind the recent rally. Of those that already reported results, 80% of them beat expectations. - “Earnings estimates may have become too pessimistic leading into 1Q24 results, and widespread beat-and-raise throughout reporting season appears to have catalyzed a turnaround in sentiment,” Barclays analyst Venu Krishna wrote. With the earnings season almost done, the attention will turn to economic data from now on. We will be here to keep you posted. This Stock May Be A Blockbuster Once The Real Estate Market Turns Today’s stock pick: Compass, Inc. (COMP) Compass is the stock you want to own ASAP. Listen, it is not a secret that the real estate industry experienced brutal years recently due to higher mortgage rates. The pandemic-era was easy money for real estate agents, but not anymore. Naturally, Compass’s stock price plummeted from its 2021 IPO with a 80% loss. There was even whispers about whether Compass could stay in business. Yes, its revenue declined in the last two years. It was normalized to $4.9 billion in total revenue for 2023 — a modest increase from $3.7 billion in 2020. Notably, the fourth quarter showed just a 1% y-o-y decline which may indicate that the bottom could be close for the industry. (Source: Compass) But Compass is not losing agents. The fourth quarter saw a 8% y-o-y growth in the average number of principal agents. That’s the key. The company is growing during the tough market. In the past, there was a huge controversy among real estate agents about Compass’s incentives. The company would grant shares, cash, and other incentives to get agents to join the company. At that time, Compass was an upstart that was aggressive in grabbing market share. And of course, it ruffled many feathers in the industry. In a positive news, Compass recruited more than 2,000 principal agents in the last quarter without any cash or equity sign-on incentives. The practice was eliminated in August 2022. Regardless, the company had no problem with recruiting. (Source: Compass) Moreover, Compass grew its market share (both year-over-year- and quarter-over-quarter) in the fourth quarter. Its agent retention is robust at 97%. Compass was running at a negative cash flow due to its status as a startup. But the company is ready to mature into a cash flow positive company. It achieved a $325 million improvement in its free cash flow — despite the fact that revenue fell by $1.1 billion last year. Everything is designed to boost margins once market conditions improve and achieve positive free cash flow by the end of 2024. Meaning? It is ripe for a blockbuster stock. Especially when the stock is trading at a market cap of just $1.9 billion. - “Over the past two years, we have successfully navigated the worst residential real estate market in decades and significantly reset our operating expense levels, positioning Compass for what we believe will be significant upside when the market begins to recover,” said Robert Reffkin, Founder and Chief Executive Officer of Compass. (Source: Compass) Now, what makes Compass special? It is a technology-first company in an old-fashioned industry. Compass developed a CRM that makes it easy for real estate agents to track their deals. Here’s the screenshot of its proprietary CRM: (Source: Compass) When the agent clicks one deal, it can store all the photos, requests tasks, take notes, and so on. (Source: Compass) What if the agent wants to market the listing? The CRM can generate a video within a few mouse clicks. It can even create a digital ad within the software. (Source: Compass) The agent can sign up with Compass’s marketing team to market the listing for her. Meaning? The agent doesn’t need to build a full marketing team. Just focus on meeting new clients and close the deals. Compass truly makes it easy for agents to do their job. (Source: Compass) Bottom line: Compass is a high-flying real estate company that is perfectly positioned to become a blockbuster stock as soon as the market turns. This is a stock to own right now. [EARN WHILE YOU LEARN! JOIN OUR FREE LIVE TRADING SESSION!](       © All Rights Reserved, Trade Alliance [Unsubscribe]( | [Manage Preferences](