🎙️ Heavier Wallets

After the Nasdaq’s worst week since June 2022, stocks bounced back to start the new week on a bright note. Even still, they could face more turbulence this fall.

September is historically a rocky, negative month. Going back to 1928, the S&P 500 has declined an average 1.2% in September, the weakest month of the year. That is also true in U.S. presidential election years, when the uncertainty around the election tends to drive choppiness until mid-November. (In election years, October is the weakest month for stocks.)

Investors have begun to ask: If another 5-10% selloff comes along, will it be another buy-the-dip opportunity?

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the biggest stories in markets:

• The world’s hottest stock market

• The state of America’s wallet

This, and more, in just 5 minutes to read.

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In The News

🔥 India Remains the World’s Hottest Stock Market

India’s stock market keeps on chugging higher. Banks and power stocks have lit up the market all year, and many investors worldwide — including in the U.S. — have noticed. 

On the move: MSCI India has rallied 21% this year, outpacing most major markets, including the S&P, which is up about 13%. The Indian benchmark has more than doubled since late 2019. 

• Exuberance abounds for everything from power companies to private lenders like HDFC Bank. Many private lenders continue to be attractive picks for investors, especially those evaluating companies on a price-to-book basis.
  

• Power stocks, meanwhile, have surged thanks to a tepid monsoon and heatwaves. 

A real rally: “There are fundamental reasons for investors to be bullish on the country,” the Wall Street Journal’s Jacky Wong pointed out. “India’s economy is strong despite a recent slowdown, with gross domestic product in the second quarter up 6.7% yearly. That has helped drive earnings growth: Net income for the companies in the Sensex index rose 9% year on year in the second quarter, according to Morgan Stanley.”

• Geopolitical tension between China and the West has helped India receive billions of dollars from companies like Apple, which are trying to diversify their supply chains from China. 

Staying aggressive: Since early 2023, net inflows from foreign institutional investors into Indian stocks have been around $26 billion. But domestic investors have driven the bulk of the rally, with net inflows into equity mutual funds in India amounting to 3.6 trillion rupees, equivalent to $43 billion, from the beginning of last year until July.

Plus, more young Indians are investing in their stock market. Many have been aggressively flocking to derivatives. (People under 25 account for more than 40% of India’s population.)

Why it matters:

India is the world’s most-populated country. But unlike China and the U.S., its growing population isn’t rapidly aging. That’s another reason why so many are bullish on India’s market and economy overall. 

There are other fundamental reasons driving it, including a boom in initial public offerings (IPOs): IPOs in India have totaled nearly $8 billion so far this year, already exceeding the total amount for all of 2023. (It’s now the second-largest IPO market after the U.S.). Shares in solar cell maker Premier Energies have more than doubled in a week.

Final thoughts: Who knows how long India’s rally will last. Indian stocks are sitting at lofty valuations, with a forward price/earnings ratio above 24 last month, compared with 21 times for the S&P 500. 

• Indian small stocks are up 34% this year, outperforming bigger firms. According to CEIC, small-caps on the Bombay Stock Exchange trade at 36 times trailing earnings.
  

• As WSJ’s Wong writes, “India is a promising long-term bet, but popular sentiment is impossible to predict and could spark a painful reversal.”

Read more

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💵 Ranked: The top-performing major foreign currencies since 2014

💳 The State of America’s Wallet

What’s in your wallet? 

Americans have more money in the bank than in 2019, adjusted for inflation, and slightly less credit-card debt relative to income. And the average 401(k) balance rose to about $127,000 in the second quarter of this year, up from about $104,000 two years earlier, according to Fidelity. 

To better understand this economic moment, let’s break down what the American wallet looks like right now. 

Money

Adjusted for inflation, Americans are making more money today than in 2019, before the pandemic, inflation, and the rise of interest rates. Real median earnings rose 3.5% from 2019 to 2024, and from 2020-22, year-over-year pay growth was highest for the bottom 25% of earners, per the Atlanta Fed. 

• The average American carries about $74 in cash in their wallet.

Debit card

Savings grew in 2020 and 2021 thanks to government stimulus payments, though that money has largely been spent. 

• “There is not money burning a hole in people’s pocket right now,” said an economist at the Brookings Institution. 

The median bank balance for the bottom quarter of earners was $1,160 vs. $8,143 for the top 25%, per JPMorgan Chase. Americans’ savings rate fell to 2.9% last month, half of what it was in 2019, which means people are spending more and saving less, likely because of confidence around their high home values, rising stock prices, and income from bonds. 

Credit card

Credit card debt is up, but not on an inflation-adjusted basis. This makes sense: As prices have soared over the last five years, so have credit card balances.

Card debt as a share of income is about even with what it was in late 2019. It’s worth noting that higher interest rates on debt — 17% in 2019 to 23% in 2024 — have made carrying credit card debt more expensive. The median balance per card was $347 earlier this year. 

More, more, more: About half of credit card users carry a balance from month to month after a record number of people opened new cards in 2021 and 2022. Most cards went to first-time borrowers

• In the first quarter of this year, about 590 million active cards were in circulation, 40 million more than in 2019.
  

• “More cards means more balances and higher delinquencies,” one economist told The Wall Street Journal. 

Driver’s license

Everyone who owns a car knows the price to buy and maintain one has soared since 2019. The average annual rate for a new car loan is about 7.1%, up from 5.4% in 2019. Insuring and repairing vehicles is costly, and gas is about 20% higher than at the end of 2019. 

As a result, many drivers are keeping their cars longer. The average age of a vehicle is 12.6 years, up from 11.8. 

House keys

Let’s not forget the elephant in the room: Housing. For most Americans, this is their biggest expense. It’s also the most valuable asset for most people. 

• Homeowners are richer, but renters are feeling the budget strain.
  

• WSJ reports that, according to real-estate firm Redfin, the monthly payment on a median-priced home purchase in July with an average mortgage rate was $3,010. In December 2019, it was $1,566. 

Home insurance? That’s another big cost. The median annual home insurance premium is $1,765 this year, up from $1,164 in 2019. 

Relief could be in store when the Federal Reserve cuts interest rates, which could allow owners to refinance and renters to buy homes with lower monthly mortgage payments. 

Read more

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Quick Poll

On Friday, we asked: Roughly what percentage of your equity portfolio is allocated to small caps?

— Nearly half of respondents have about 0-10% of their equity portfolio in small caps. One person who doesn’t own them said: “Bigger returns and more opportunities for profit in larger US companies.”

— One small-cap investor wrote, “My definition of small caps is probably less than what most people call small. For me a small cap is less than 100 million USD.”

— Someone with between 11-25% of their portfolio in small caps said, “I try to diversify across stock classes.”

See you next time!

That's it for today on We Study Markets!

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