🕺 US business activity stable

and stocks continue to rise

Good morning investors! More positive data is out and stocks are yet to take a break.

Today we cover:

  • U.S. business activity report

  • Stocks rise

  • Homes and down payments

Reminder: Don’t forget to check our latest video:

📊 Economy and News 

U.S. business activity steady in September

In September, U.S. business activity remained stable, but the average prices for goods and services increased at the fastest rate in six months, signaling a potential rise in inflation in the near future.

This development is consistent with other recent economic indicators, such as retail sales, which show that the economy continued to grow robustly during the third quarter.

However, uncertainty surrounding the upcoming presidential election on November 5 is affecting business confidence. While the services sector maintained steady growth, the manufacturing sector fell to its lowest level in 15 months.

The pace of price increases for goods and services reached its highest point since March, marking the first uptick in selling price inflation in four months.

A business survey showed that input costs rose to a one-year high, with the index reaching 59.1, up from 57.8 in the previous month. Similarly, the measure for prices charged increased from 52.9 in August to 54.7.

The rise in costs, especially within the services sector, was largely attributed to wage increases. Although this suggests growing price pressures, there is mounting evidence that inflation is gradually easing.

The labor market has also slowed significantly this year, with the unemployment rate climbing above 4.0 percent, compared to 3.4 percent in April 2023. This suggests that the labor market is no longer a major driver of inflation.

Global hits:

New stock pick: Veteran value investor Bill Nygren cautioned that the S&P 500 has become less diversified than in the past, prompting him to seek undervalued stocks outside the dominant technology sector.

One of the key holdings in his portfolio is Corebridge Financial, a $15 billion retirement services and life insurance company recently spun off from AIG.

Corebridge is currently trading at around $28 per share, and Nygren expects its book value to reach $50 by the end of 2025, with the stock potentially trading at four to five times earnings. He also noted that the company could repurchase up to 20% of its stock annually.

Surprising: UniCredit boosts its stake in Commerzbank, applies to own up to 29.9% of the German bank.

📈 Stocks

S&P 500 5,718.57 (+0.28%)
DJIA 42,124.65 (+0.15%)
NASDAQ 17,974.27 (+0.14%)
BRENT CRUDE 74.13 (-0.42%)
* Prices as of Sep 24th, 12:20 AM UTC

Stocks continue to climb

The S&P 500 reached a new record high on Monday, as traders sought to extend last week’s gains after the Federal Reserve reduced interest rates.

This rise followed a strong week for Wall Street, driven by the Fed’s decision to lower interest rates by 50 basis points, marking its first cut in four years. While there was some volatility immediately after the announcement, stocks gained momentum in the following days.

Traders are now closely monitoring upcoming economic data that could affect optimism for a smooth economic transition. On Thursday, the release of weekly jobless claims will provide further insight into the state of the economy and labor market.

Elsewhere, Boeing has sweetened labor proposal in ‘best and final’ offer as strike enters second week, The report helped the stock climb about 3%.

Goodbye luxury? Luxury stocks tumbled on Monday as analysts warned of a deteriorating demand outlook, particularly among high-spending Chinese consumers.

Germany’s Hugo Boss was among the worst performers on the Stoxx 600 index, down 4% at 12:11 p.m. in London.

“I think most people were hoping things would improve in the second half of the year — no sign of that happening at all at the moment,” Kepler Cheuvreux’s Jon Cox told CNBC on Monday.

GM comeback: EV sales data provided to CNBC by the Detroit automaker, which publicly reports sales quarterly, shows a notable increase for GM through August.

GM sold nearly 21,000 EVs in the U.S. in July and August – almost matching its full second-quarter EV sales.

Those two back-to-back record months for GM’s EVs have it within striking distance of Ford through August.

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💵 Personal Finance

How much downpayment do I need to buy a house?

Buying your first home can feel daunting. It’s one of the most important and biggest purchases that you’ll ever make. But, unfortunately, most people in the US do not have enough to buy a house.

Prices have been on the rise. In fact, the median sales price has jumped to $359,000 in January 2023 from $266,300 in January of 2020. This means someone trying to save up a 5% down payment would have needed $13,315 for the average home in January of 2020 but $17,950 just three years later. 

The first step to buying your house is to know how much you need to buy one. Between sky-high prices and changing mortgage rates, thinking about your budget can feel downright maddening.

There seem to be many myths about the down payment. It is an initial up-front partial payment for the purchase of your house. Before we talk about down payments, let's be clear that the minimum depends on a variety of factors, including the type of loan you are dealing with.

Some other factors that impact the down payment include the type of property you are interested in and your financial capabilities.

Contrary to popular belief, you do not need to put down 20 percent of the purchase price. In fact, first-quarter 2023 data from Realtor.com found that the average down payment on a primary residence was just 13 percent. And, this is not the minimum but the average.

Several low- and no-down payment mortgages allow for even less money upfront, as highlighted above.

The rule of 36: The rule of 36 is guidance on how much your monthly mortgage payment should be. The rule states that no more than 36% of your gross income should be attributable to debt, and this includes your monthly mortgage.

What about the salary: Lenders often allow borrowers to incur debt roughly 4 to 4.5 times their annual pay. For example, if your annual salary is $200,000, it's most often advised you pursue a mortgage no more than $800,000 to $900,000.

Figure out your down payment based on your budget and financial goals. Don’t make the mistake of spending every penny you have to cover your down payment just to reduce the monthly amount.

Lenders prefer applicants with a good amount of cash reserve. Furthermore, you should save some for rainy days.

Here are a few things you can do to manage your down payment fund:

  • Look for support programs. You might find several if this is your first home with the intention to live in. Some of the most popular first-time homebuyer programs include HomeReady mortgage, Home Possible mortgage, and HomeOne mortgage.

  • Know perks you enjoy: Home buyers enjoy several perks such as the ability to take up to $10,000 from a traditional IRA or Roth IRA without the 10% early withdrawal penalty.

  • Cut expenses and save more. Create a goal and get rid of things you do not need, such as subscription services.

Check this video for more on how to save for a house:

💰 Be a Better Investor

“Behind every stock is a company. Find out what it’s doing.”

Peter Lynch

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Nothing in this newsletter is financial advice. Always do your own research and think for yourself.