September 01, 2022

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Happy Thursday. Can you guess what percent of US homebuyers over the past couple of years have regrets about their home purchase? a. 32%, b. 52%, c. 72%. Follow the wave 🌊 below for the answer.

Here are the topics for today:

The bear market trap
What Q2 retail earnings tells us about consumer trends
Homebuyer’s remorse: why recent homebuyers are regretful

MARKETS

The Bear Market Trap

The official mile-marker for bear market territory is a 20% drop from the most recent high, and we surpassed that point across multiple indexes on a few occasions this summer. That is until our recent Q3 relief rally took place a couple weeks ago through last Thursday.

At their lowest, indexes like the S&P 500 were down 23%, and the Nasdaq a whole 32% by mid-June. And by the end of last Thursday, those losses were cut in half to 12% and 15% respectively, naturally leading us to wonder if the worst was behind us—a classic bear market trap scenario.

Such traps happen when an asset (like stock or other securities) that was losing value suddenly reverses course and begins to gain value or when an asset that looks to lose value keeps gaining. Such traps can lure in bearish investors who've bet against the asset causing them losses.

Gambling on the downside

Why we rebounded: The market rallied in late July for a few reasons: inflation, rates, and hope. It’s not that rising rates or high inflation is good for the markets, it’s that by July, we reached an inflection point where investors started to anticipate inflation’s peak, leading to an injection of hopium into the markets.
But we’re not out of the woods: Although that estimation might’ve been correct according to our last CPI report, the future is unknown, and it will still take inflation a good while to reach acceptable levels even if it does decline. Current reports also seem to place the next rate hike at an unknown for now, with most unsure if it’ll be another 75 basis points (0.75%) or a drop back to 50. “While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” Fed chair Jerome Powell said last Friday.
Big bets going against the trend: According to multiple reports, it seems hedge funds have upped the ante on their bets with net short positions on the S&P 500 of $107B. It’s not gambling if you’re a professional, right?

What’s the verdict?

The market rally has certainly been stifled over the last few weeks, and the next move is anyone’s guess. All eyes are also on the labor market to see how it shapes up thanks to tighter financial conditions. We now find ourselves in an intermediary period while waiting for both the next inflation report coming out on September 13th and the next FOMC meeting that happens between September 20-21st.

Take this related lesson on this topic and earn Dibs 🟡 while you're at it:

Bear Markets & Volatility

Investing Basics

5 mins

MARKET OUTLOOK

What Q2 Retail Earnings Tells Us About the State of the Consumer

Whether it’s the market, economy, or even down to the business and consumer level, we can learn a lot from company earnings just by looking closely at the data that comes in every quarter. And perhaps the most interesting of the bunch? Retailers.

Retail earnings give us some quality insights into what’s going on at the local level with consumer spending and can be a solid indicator of macro trends.

Within the last couple of weeks, we’ve been given a slew of big-name retailers’ earnings reports to comb through, and we've learned a few things.

The findings

Spending is holding up: July's consumer spending report held up, flatlining at 0.0%. While that might seem unimpressive, it was actually up 0.7% excluding gas and auto sales, and the fact that it’s remained level amidst recession worries is a positive sign for consumer purchasing power and their propensity to spend.
Spending more responsibly: What we've anecdotally noticed is that consumers are spending less on expensive and discretionary items like electronics. And when we combine this with home and auto prices finally cooling a bit, it stands to reason that consumers are spending more prudently and putting off expensive purchases in the face of inflation.
Margins are tighter: As for the retail front, tighter margins are becoming the main issue, especially among smaller firms. Combating a combination of inflation, wage growth, and excess inventory is not an easy task and will undoubtedly disappoint some shareholders, just ask Target.

Going into 2023

After having fallen 4.2% this year into the first negative discretionary cashflow range we’ve seen since the 2008 crisis, Goldman Sachs is expecting household cashflows to rebound in 2023. This should help to fuel consumer spending if it plays out accordingly.

This little data point is just a microcosm of the optimists' outlook on this weird little unknown time we’re in right now, and if that outlook were to prove truthful, it would be the best-case scenario for retailers and the economy.

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MONEY TIPS

Homebuyer’s Remorse: Why Recent Homebuyers Are Regretful

Owning a home is a dream of many people around the world. It provides a sense of safety and pride that you normally can't achieve with renting.

Lately, though, recent homebuyers are experiencing remorse about their purchase. In a survey of 1,000 respondents who’d bought a home in 2021 or 2022, 72% said they had regrets already, with the number one reason cited being overspending.

Being proactive to avoid buyers’ remorse

Be patient: Rushing something as big as a home purchase is almost always a bad idea. It takes time to figure out what you can comfortably afford, your budget, goals, and find a quality agent (if needed) that will go through the process with you. Homebuyers who rush into it are far more likely to overspend, compromise, not have the ongoing means to afford it, and regret their purchase.

Don’t make a risky investment: With growth cooling and the market at an apex of sorts, it’s a difficult time to be a real estate investor. Seeing the value of your investment decline after paying up in a hot market can be bad for your ROI. It’s important to avoid making an investment where the odds of loss are higher than you can afford.

Be okay with value fluctuations: On the flip side, if you’re buying a house to make it a home and keep it in the family for decades to come, don't obsess over your home valuation fluctuating. As long as you’re right side up on your mortgage and not in financial trouble, it’s entirely normal for your home value to go through its cycles.

Take this related lesson on this topic and earn Dibs 🟡 while you're at it:

Home Buying Power Tips

Housing

5 mins

🔥 TODAY'S MOVERS & SHAKERS

Nutanix (+28.4%) as the cloud-computing company beat analyst expectations for the most recent quarterly earnings; the company also saw an increase in annual recurring revenue.
Okta (-33.5%), the identity management software company, beat on financials and issued upbeat guidance, but shares may be sliding due to integration issues with its acquisition of rival Auth0 last year.
Bitcoin (-1.3%) to $19,791.70 (1D)
Ethereum (-1.1%) to $1,536.74 (1D)

This commentary is as of 9:15 am PDT.

🌊 BY THE WAY

🤦🏽‍♀️ Answer. 72%. As the US housing market cools, crazed competition for homes in the past couple of years left 72% of recent homebuyers with regrets about their home purchases (Anytime Estimate)
🛒 Walmart-owned Sam’s Club raises annual membership fee for the first time in nine years (CNBC)

📈 ICYMI. About those relief rallies in a bear market (Finny)
☕ Starbucks is rethinking almost everything, including how to make frappuccinos (WSJ)
🤝 Finny lesson of the day. Rent prices are generally high right now. If you're renting, there are still ways you may be able to negotiate your rent. If you don't try, you won't know.

Negotiate Your Rent

Housing

5 mins

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The Gist is Finny's twice-a-week (Tues & Thurs) newsletter covering personal finance & investing insights and money trends. Finny does not offer investment and stock advice or endorsements. The Gist content team: Chihee Kim, Austin Payne, Carla Olson.

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