TradeAlgo Daily Bulletin: Fed Official Cools Down Rate Cuts Excitement

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LIVE TRADING SESSIONS DAILY!]( Hello investor, Fed Official Cools Down Rate Cuts Excitement Federal Reserve Governor Christopher Waller revealed the worst-kept secret on Wall Street – yes, the central bank “will be able” to cut rates this year as long as inflation keeps its downward trajectory. - “As long as inflation doesn’t rebound and stay elevated, I believe the FOMC will be able to lower the target range for the federal funds rate this year,” Waller said. - “When the time is right to begin lowering rates, I believe it can and should be lowered methodically and carefully.” However, he hinted that the markets’ projections of a March rate cut may be too premature. He pointed out that the economy is still going strong while inflation is falling, so there is no reason to cut rates rapidly. In the previous cycles, the central bank had to cut rates quickly due to economic shocks but that hasn’t happened so far. - “With economic activity and labor markets in good shape and inflation coming down gradually to 2%, I see no reason to move as quickly or cut as rapidly as in the past,” he said. Fed Reserve Governor Christopher Waller (Photo: Bloomberg) As a result, Treasury yields jumped after Waller’s comments. Traders reduced the odds of a March rate cut and the total cuts for the year. Waller also revealed his confidence that the Fed is “within striking distance” of reaching the 2% inflation target. Once Fed officials are confident that inflation is in a strong trend down to the target level, “we can slowly calibrate the real rate cut down,” he said. “If we think we need to move it faster, we can move it faster depending on what the data says. But the key is we have the flexibility that we can be methodical and careful.” Bank earnings: Several major banks released their quarterly results yesterday. Goldman Sachs and Morgan Stanley beat revenue expectations, and their data indicated that consumers remain strong in terms of spending and account growth. This is a positive sign for the economy’s resilience over the next few months. - “So far, it seems like the consumer is holding up fairly well. If you look across, the banks that have reported, in general, spending’s okay. Credit card balances are up, but [we’re] also getting more account growth,” said Tom Hainlin, senior investment strategist at U.S. Bank Asset Management. Today, we will receive retail sales data that will offer clues on whether there are any signs of a recession if consumer spending cooled down. Invest In The Company Using Apple’s Growth Playbook Today’s Stock Pick: KLA Corporation ([KLAC]( One of Tim Cook’s favorite books is Competing Against Time. The basic premise of the book is that top companies move faster than competitors. They innovate faster. Product cycles are faster. Products move through the factory faster. Because of the speed, the company learns faster and cuts costs faster. Going fast becomes a flywheel that drives the business to the stratosphere. The author of that book wrote: - “When a timebased competitor can open up a response advantage with turnaround times three to four times faster than its competitors, it will almost always grow three times faster than the average for the industry and will be twice as profitable as the average for all competitors.” Indeed, that was one of the secrets behind Tim Cook’s extraordinary success with Apple. Apple just released its iPhone 15 lineup, and let’s look at how huge its selection is for the customers: - Four different models – iPhone 15, iPhone 15 Pro, iPhone 15 Pro Max, iPhone 15 Plus - Nine different colors across these models - Four different memory capacity – 128GB, 256GB, 512GB, and 1TB (Source: Apple) It is not easy to offer these options. Color options bring a new level of headaches to the production process. It is far easier to offer one model for everything. Henry Ford stuck with one color – Black – for this reason. You also see it with Tesla. Elon Musk focused on a small number of models and colors. However, Apple brings a big advantage with its quick product cycles (once a year) and wide-ranging options. Today’s stock pick, KLA Corporation, is a time-based company that owns its competitors. KLA offers the process diagnostic machines that scan chips and wafers for imperfections and mistakes. That is the final step of semiconductor production. And it is running far away from the competitors in this space. It owns a whopping 50% of the market share in process control – four times higher than the nearest competitors across all regions: (Source: KLA Corporation) Listen, nearly all megatrends require a whole lot more semiconductor chips. The surge in demand puts pressure on the industry’s ability to supply semiconductors. Gartner recently published that process control was one of the fastest-growing segments of WFE in 2021, growing 43% in the year to $10.4 billion. Within process control, KLA is all over the fastest-growing segment in the optical inspection, outpacing WFE by 40%, and KLA’s market share is more than 80% in that segment! Innovation: Competitors copying your methods is a fact of life in business. That’s why a business can’t rely on a single innovation. If you come up with a new improvement, competitors will copy and release similar features soon enough. Therefore, you must innovate constantly to stay ahead. Competing Against Time quoted an executive from Sun Microsystems saying that you must move so fast that competitors will always lag behind. When they copy your methods, you are already on the next innovative one. - “Copying something that moves faster than you can copy it isn’t a good business to be in,” said Bernard Lacroute, executive vice president of Sun Microsystems. Precisely, KLA Corporation invests an incredible amount of money into R&D. It averaged 14% of the sales, which is far higher than a typical budget of 10% or below. It is now easy to see why KLA owns such an enormous market share in the process control industry. It introduces new products at two times faster than competitors. (Source: KLA Corporation) Shareholder-friendly company: Often, an innovative company retains all of its earnings and plows back into the business. Not KLA. You will get a generous return. The company is committed to returning more than 85% of its FCF to shareholders through dividends and share repurchases. Last year, $4.48 billion of shares were repurchased. (Source: KLA Corporation) If you invested in KLA back in 2015, you would own shares at about $50. Its current dividend per share is $5.20. In only seven years, your dividends will now yield at 10%+ annually! That’s the power of growing dividends per share. KLA boosted its dividends per share by 15% CAGR since 2006: (Source: KLA Corporation) Absurd margins: You wouldn’t believe how profitable KLA is. It has an operating margin of 38.8%! The FCF margin is also impressive at 30%. It is a cash machine business. In other words, it has a perfect structure to reward shareholders fabulously for a decade or more. (Source: KLA Corporation) Bottom line: There is so much to like about KLA: dominant market share, absurdly high margins, shareholder-friendly, and big growth. Buy this stock, and enjoy its compounding growth in dividends. [EARN WHILE YOU LEARN! LIVE TRADING SESSIONS DAILY!](       © All Rights Reserved, Trade Alliance [Unsubscribe]( | [Manage Preferences](