Red-Hot Jobs Data = Bullish or Bearish?

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Meta is becoming a shareholder-friendly company by announcing a quarterly dividend and a $50 billion share buyback program, leading to a massive jump in its stock price by more than 20% in a single day of trading. Amazon also surged 7.9% on a strong fourth quarter result. The biggest news from yesterday was a blockbuster jobs report. The economy added 353,000 jobs in January which crushed the estimates of just 185,000. As a result, the benchmark 10-year Treasury yield soared by 17 basis points to 4.02%. This indicated that Wall Street believes rates will stay higher for longer. Why? The central bank is unlikely to cut rates when the economy is this red-hot. Lower rates could stimulate economic growth, so it could add fuel to the fire. A strong economy could keep inflation high, so the central bank is unlikely to risk reaccelerating inflation by cutting rates in the middle of a hot economy. - “A March rate cut now appears increasingly unlikely,” said Jason Pride at Glenmede. “The more likely trajectory is two-three cuts this year beginning around summer.” A smaller number of rate cuts should have dragged stocks down, but it didn’t have an effect on tech stocks yesterday. Tech companies simply do too well for investors to sell their shares. - “The price action today is a display that tech can decouple from the rates narrative and trade more on fundamentals,” said Dylan Kremer, chief investment officer of Certuity. “You’re in this window where tech can trade higher despite where rates are going, and that’s catching people off guard.” Dylan Kremer, chief investment officer of Certuity (Photo: citybiz) Additionally, wage growth grew by 4.5% year over year. That was above the 4.1% forecast. This adds another case point for the Fed to avoid cutting rates during its March meeting. So, what is next for stocks? Some analysts believe that the economy is on fire. It would be positive for corporate earnings, so stocks may naturally rise alongside earnings growth. Neil Dutta at Renaissance Macro Research said “it’s hard to get too bearish” with the economy performing this well. - “Just as many were caught off guard by the recession that never appeared in 2023, there’s always the possibility that another year will go by without a recession,” said Chris Zaccarelli at Independent Advisor Alliance. Believe it or not, the Magnificent Seven was responsible for 45% of the S&P 500’s return in January. So, tech stocks continued to dominate the market’s strength, and it will rely on their future earnings growth to support the current rally. Top Dividend Stock For A High-Reward, Low-Risk Return Today’s Stock Pick: OneMain Holdings Inc ([OMF]( Warren Buffett repeatedly talked about Berkshire Hathaway’s number one competitive advantage: Financial strength. For its insurance operations, the best days come when the financial conditions deteriorate so badly that competitors are forced to leave the market due to the lack of financial resources. As a result, Berkshire can underwrite insurance contracts at an attractive margin. Today’s stock pick is in a similar situation. OneMain Financial is the largest nonprime installment lender which targets consumers with subpar credit. That’s where big banks (such as JPMorgan Chase or Citi) won’t touch. However, thanks to the rise of artificial intelligence and machine learning, non-prime lending has turned into a lucrative business. You can predict a person’s likelihood of missing payments with frightening accuracy. That’s one competitive advantage for OneMain Financial. And the next advantage is its financial strength. OneMain generally operates in nonprime segments, but more competitors are pulling out from lending to consumers with higher credit. Why? Lack of financial resources. OneMain began backing off its lending to the low end of the credit scores due to economic uncertainties as early as late 2021. It reduced assumptions of collateral values and require more verifications on certain new loan applicants. And then, Christmas arrived early for the lender. It ended up finding a better market (where competitors backed out) for its loans. The opportunity exists because OneMain is sitting on a fat balance sheet. - “…we've seen some competition pull back even with better credit quality customers, presumably due to a lack of balance sheet funding for loans. This has created opportunity for us to originate higher credit quality business and continue to drive receivables growth despite the credit adjustments we've made,” said CEO Douglas Shulman. - “We like this competitive positioning using our incredibly strong balance sheet to move our overall portfolio to higher ground as we are starting to see some challenges in the lower credit quality consumer.” OneMain is sitting on a $7.4 billion in undrawn bank capacity, and more than 24 months of liquidity to stay in business even if they earn zero revenue. (Source: OneMain Financial) Attractive valuation: We haven’t told you the best part about OneMain. You wouldn’t believe the dividend yield it’s currently trading at. The dividend yield is now at about 8.42% Wall Street is not a fan of OneMain because of its highly leveraged balance sheet. (More than 5.5x.) This risk delivers an extraordinary opportunity to buy low on the company. Moreover, OneMain is now trading at a 8.78 P/E. But that’s only a small piece of the incredible opportunity. The next big thing is in credit cards. Right now, OneMain focuses on personal loan, but it released two new credit cards under the Brightway Card brand. This is a biggie because the TAM for credit cards are five times bigger than personal loans. (Source: OneMain) So, we are not talking about investing in OneMain just because of its 8 P/E and a 8% dividend yield. There is also a major growth catalyst in credit cards over the next decade. Bottom line: OneMain Financial is trading at an absurdly low P/E because OneMain is just rolling out its new vertical in credit cards. If you buy this stock, you could enjoy a 8% annual return in dividends immediately. This is a stock worthy of your attention. [EARN WHILE YOU LEARN! JOIN OUR FREE LIVE TRADING SESSION!](       © All Rights Reserved, Trade Alliance [Unsubscribe]( | [Manage Preferences](