About That 'Pay Later' Part of the Deal

Forget tariffs, says Wall Street... From one war to another... The economic threat that fewer are watching... Consumer cracks are growing fast... The silent surge in 'buy now, pay later' defaults... Your investing 'green thumb'...

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Tariff threats returned... for a moment...

If you were already checked out late on Friday for the long Memorial Day weekend, you missed it, but it happened again...

President Donald Trump reignited new tariff threats, saying he wanted to put a fresh 50% tax on all goods imported to the U.S. from the European Union. He also warned Apple (AAPL) about a 25% tariff, "at least," on iPhones not manufactured in America.

Maybe it's because it was the last hours before the unofficial start of summer in the U.S., but the market didn't pay this talk too much mind. The major U.S. indexes were lower Friday, but not by much – and, it seems, for good reason.

By Sunday, Trump said he'd delay the proposed 50% tariff on EU goods until July 9. The move came after a call with European Commission President Ursula von der Leyen. Both said afterward they want to talk about a trade deal over the next month or so.

Meanwhile, Kevin Hassett, Trump's National Economic Council director, said in a CNBC interview that, "We'll see what happens... but we don't want to harm Apple."

And then, once the markets reopened following yesterday's Memorial Day holiday, the U.S. stock indexes were higher across the board.

The benchmark S&P 500 Index was up roughly 2%, the small-cap Russell 2000 Index and the tech-heavy Nasdaq Composite Index were each up 2.5%, and the Dow Jones Industrial Average closed 1.8% higher.

Longer-term bond yields also fell some... And the CBOE Volatility Index, or VIX, fell below 20.

So, tariff talk now is much ado about nothing? That's how the market is reacting...

Investors have heard about tariffs almost daily for months. They've seen numbers go as high as 145% (on Chinese goods) only to be paused at 10% for 90 days. The threats have lost their teeth.

For better (a huge run-up in stocks since the April 9 "90-day pause") or worse (the fact that consequences of the tariffs haven't shown up in economic data yet), Wall Street is looking past new tariff threats now.

As our Ten Stock Trader editor Greg Diamond wrote on Sunday...

Perhaps we see some pushback from China or Canada – or even Europe. But what is going to happen is stocks are going to look past any negative headlines and discount that some kind of deal will get done.

The stock market loves to discount the future...

Simply put, it appears to me that the trade war is over and other countries are going to come to the table in some capacity to make a deal.

Does this mean volatility is over?

No.

We are seeing increased tensions overseas with actual war and not trade war, which may bring more volatility. We may also see how inflation plays out as we get more economic data heading into June.

From one war to another...

The "actual war" that Greg is referring to is the one between Russia and Ukraine, which now is nowhere close to a conclusion.

As negotiations to end the war, or even have a ceasefire, have stalled and Russian attacks on Ukraine continue, Trump over the weekend said Russian President Vladimir Putin is "absolutely crazy." The Kremlin replied by saying Trump was showing signs of "emotional overload."

Trump countered with a post on his Truth Social account this afternoon saying Putin is "playing with fire!" and that "what Vladimir Putin doesn't realize is that if it weren't for me, lots of really bad things would have already happened to Russia, and I mean REALLY BAD."

At least they're "talking" to each other through the media... But don't be surprised if the war in Ukraine, and the U.S. and European interests in it, get a shake-up in the weeks or months ahead.

As for this week, we're going to be keeping an eye on some earnings reports – including Nvidia (NVDA) on Wednesday evening – plus a host of Federal Reserve speakers and the latest "official" inflation data, due on Friday.

In the meantime, tariff 'relief' has helped consumer confidence bounce back...

This morning, the Conference Board Consumer Confidence Index showed a rebound in sentiment in May. This month's increase (to 98 from 85.7 in April) marked the first increase in consumer confidence since last November.

Trump's announcement that his administration would delay its highest tariffs on China played a huge part. Half the responses in the survey came after that announcement on May 12, but Conference Board Senior Economist Stephanie Guichard said...

The rebound was already visible before the May 12 US-China trade deal but gained momentum afterwards.

Under the hood, respondents became more optimistic on every component in the survey in May than they were in April... Folks' feelings on business conditions, employment prospects, and future income all improved.

This is all relative, though. With the exception of lower consumer-sentiment readings in March and April, May's numbers are still lower than any other month in the past year.

Now, with the White House teasing the chance of more trade deals in the coming weeks and months, we could very well see consumer confidence continue to rebound – just like we saw in the stock market.

But this scenario isn't exactly an "all clear" for the economy.

What a 'buy now, pay later' leader tells us about the consumer...

Last week, buy now, pay later ("BNPL") giant Klarna released its financial results for the first three months of 2025.

As a reminder, BNPL loans are a way for folks to break up their purchases into installments if they can't afford the total cost outright. These loans are like mortgages or any other loans but are most often offered by retailers.

Klarna is a BNPL service used by more than 720,000 merchants, including major retailers and brands such as Walmart, Amazon, and Nike. Klarna's revenue rose 15% year over year to $701 million, and the company also hit 100 million active users.

Over the past several years, more and more people have discovered and begun using this kind of financing, even for items like food and clothes in the case of struggling lower-income Americans.

But Klarna's customers are struggling to pay back these loans. The company reported a net loss of $99 million – more than double the loss from the same period in 2024.

While Klarna blamed restructuring and other one-time costs, consumer-credit losses – Klarna's term for folks that haven't done the "pay later" part of the deal – jumped 17% to $136 million.

This is a trend we've been watching for a while...

Folks are falling behind on all types of debt – from credit cards to auto loans and now student debt.

Just take a look at this chart from Bloomberg (based on the most recent New York Federal Reserve data):

In the first quarter of 2025, serious delinquencies (measured as 90-plus days behind on payment) rose across every category. Credit-card delinquencies hit the highest level since 2011, while delinquent auto loans hit a five-year high.

And now, Klarna's BNPL data is showing the same thing – folks are falling behind on paying their debts. That doesn't surprise us, but it's a warning sign for the underlying health of the U.S. economy.

BNPL data isn't included in broader delinquency data yet, so we can only guess at how much worse the consumer picture is when you account for late payments on BNPL loans.

The student-loan risk is here...

On May 5, the Department of Education under the Trump administration began resuming collections of defaulted federal student loans. That follows a five-year "pause" on repayments that had begun in the depths of the pandemic...

This is a big deal that could lead to consumers and their credit scores getting dinged even more. According to a Department of Education statement last month, more than 42 million borrowers collectively owe more than $1.6 trillion in student debt and...

More than 5 million borrowers have not made a monthly payment in over 360 days and sit in default – many for more than 7 years – and 4 million borrowers are in late-stage delinquency (91-180 days). As a result, there could be almost 10 million borrowers in default in a few months. When this happens, almost 25 percent of the federal student loan portfolio will be in default.

And that's just the start of it. Only 38% of borrowers are current on their federal student loan payments. And according to the U.S. Department of Education...

Most of the remaining borrowers are either delinquent on their payments, in an interest-free forbearance, or in an interest-free deferment. A small percentage of borrowers are in a 6-month grace period or in-school.

Something has to give, given the size of this issue. Younger Americans are getting into more serious debt problems right about now... And costs for just about everything are much higher than they were five years ago when the loan "pause" began.

Things could get worse...

So far, markets don't care about the state of the consumer. Investors have enough to keep an eye on with daily tariff headlines, the Federal Reserve's next move, and even earnings results of the huge tech companies propping up the market.

So they're looking past the broader impacts growing consumer debt and late payments will have on the economy down the road. Remember, about 70% of U.S. economic activity is tied to consumer spending.

We don't know exactly how high delinquencies need to get this time before the market starts to pay attention. But at some point, this will send the market back into panic mode as talk of "recession" returns to the mainstream.

In the meantime, Wall Street has noticed the issues in the BNPL industry.

Klarna is not publicly traded yet (an IPO could come soon), but its competitor Affirm (AFRM) is. This year, Affirm's stock is down nearly 20%. And it's down more than 40% from its market debut in 2021.

Given today's consumer-debt picture, don't try and catch the falling knife in Affirm. And Klarna, if and when it goes public, is another one to avoid... especially while warning signals about the "pay later" part of its business equation are growing.

We'll close today with a question...

How green is your thumb?

We don't mean your ability to grow a beautiful springtime garden... but rather your investing "green thumb." In other words, have you been able to consistently grow your wealth through both market droughts and floods?

The folks at Stansberry Asset Management ("SAM") have been pondering this question lately...

SAM is a U.S. Securities and Exchange Commission-registered investment adviser, separate from our publishing businesses. Its team has spoken with lots of folks recently who missed much of the market's rally in 2023 and 2024... or panic-sold most of their portfolio near the lows in April... or both.

And it's not just individual investors dealing with wilting investment decisions. Per data from Bank of America, hedge funds and institutional investors sold near-record amounts of stocks in March and early April, missing out on much of the market's recovery since.

That's why SAM's investment team is sharing a new approach to investing that could help grow your wealth no matter the market weather. This investment strategy is forged from decades of successful investing experience and is designed to guide you through bull and bear markets and everything in between.

SAM invites you to learn all about it in a live webinar tomorrow, Wednesday, May 28, at 4 p.m. Eastern time.

Hosted by SAM Chief Investment Officer Austin Root and Deputy Chief Investment Officer Mario Valente, this session will challenge traditional portfolio thinking – and offer a smarter way forward.

As Austin explains, this is not the traditional "set it and forget it," blended 60/40 stock-bond portfolio that so many investment advisers prescribe. But it also is not some radical way to try to "time the market" and go all in or all out. Instead, it's a nuanced and tailored approach, designed to reduce volatility and consistently grow your wealth and income over the long run.

As Austin says, "Markets have changed. Risks have evolved. And it's time your investment strategy did, too." Click here to reserve your spot.

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In today's mailbag, we have a response to Dan Ferris' Friday essay... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"My version of preparation is to, recently, make almost all purchases of stocks those of foreign companies. Seems like the best way to avoid a US market meltdown. For what it's worth..." – Subscriber Steve C.

All the best,

Corey McLaughlin with Nick Koziol
Baltimore, Maryland
May 27, 2025

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Disclosure: Stansberry Asset Management ("SAM") is a Registered Investment Adviser with the United States Securities and Exchange Commission. File number: 801-107061. Such registration does not imply any level of skill or training. Under no circumstances should this report or any information herein be construed as investment advice, or as an offer to sell or the solicitation of an offer to buy any securities or other financial instruments. For more information on SAM, please visit here.

Stansberry & Associates Investment Research, LLC ("Stansberry Research") is not a current client or investor of SAM. SAM provides cash compensation to Stansberry Research for Stansberry Research's advisory client solicitation services for the benefit of SAM. Material conflicts of interest may exist due to Stansberry Research's economic interest in soliciting clients for SAM. Certain Stansberry Research personnel may also have limited rights and interests relating to one or more parent entities of SAM.

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