The soaring prices of new cars have been a concern for buyers and investors during the pandemic. However, recent trends suggest that new cars are becoming more affordable. The average price of a new car has reached approximately $47,000, showing an increase of about $10,000 or 33% compared to 2019. Despite this spike, interest rates have decreased from their highs, and the average price has dropped by nearly $3,000 from the peak.
Affordability Index
Comparing changes in wages, interest rates, and new-car prices, an affordability index was calculated by experts. In the second half of 2019, the index averaged around 56, surged to almost 66 by December 2022, and presently stands at 61—signifying a balanced midpoint.
Rebecca Lindland, senior director of industry data and insights at Cars Commerce, predicts further enhancements for buyers. She notes that nearly half of shoppers intend to spend less than $30,000 on a new car, despite only 13% of new cars falling under this price range. Interestingly, there has been a 63% increase in low-price availability compared to last year at the same time. As production and inventory recover, Lindland foresees a transformation from a seller’s market to a buyer’s market.
Future Outlook
A potential reduction of 3%, equivalent to $1,500, in new-car prices—alongside a 3% wage increase and a decline in interest rates—could bring affordability back to 2019 levels. Nevertheless, the current situation is far from “normal.” A notable decline in leased vehicles reflects lower sales between 2020 and 2022, resulting in an estimated shortage of around 10 million cars. The scarcity of used inventory might prolong the stability of used-car pricing, consequently impacting new-car prices as well.
Last Week Recap
- Bitcoin surpassed $60,000 and approached record levels.
- Congress passed a short-term spending plan upon its return.
- The Nasdaq Composite and S&P 500 achieved new highs.
- The Fed’s preferred inflation metric rose by 2.4% in January.
- Weekly market performance:
- Dow industrials dropped by 0.11%
- S&P 500 rose by 0.95%
- Nasdaq gained 1.74% Companies
Warren Buffett’s annual letter to Berkshire Hathaway shareholders highlighted a lack of transformative deals and eye-popping performance opportunities. Despite this, the company celebrated strong earnings, particularly significant gains in Japanese stocks. In recent news, the Justice Department has initiated an antitrust probe into UnitedHealth. Additionally, Microsoft made a notable investment in French AI company Mistral, while Apple shifted focus away from building an electric car towards advancements in AI.
Deals
A notable deal occurred as China’s Ant Group outbid U.S.-based Citadel Securities to acquire Credit Suisse’s China securities business from UBS. Alcoa has also agreed to purchase Australia’s Alumina for $2.2 billion. However, Chevron faces challenges with its $53 billion deal for Hess, citing potential interference from Exxon Mobil and China’s Cnooc seeking to counteroffer for Hess’ stake in a Guyana oil project. The Federal Trade Commission has even taken legal action to block Kroger’s $25 billion acquisition of rival grocer Albertsons.
Milestone
Vanguard announced that Chairman and CEO Tim Buckley, aged 55, plans to retire by the end of the year.
Fourth-quarter earnings season is wrapping up, with over 90% of S&P 500 index companies having already reported. A few large-cap companies are set to announce results this week, starting with Target before the opening bell on Tuesday, followed by CrowdStrike Holdings and Ross Stores after the market close. Later in the week, investors can expect earnings releases from Broadcom, Costco Wholesale, and Kroger.
Federal Reserve Update
On Wednesday 3/6, Federal Reserve Chairman Jerome Powell is scheduled to testify before the House Financial Services Committee as part of the Semiannual Monetary Policy Report to Congress. Powell will also appear before the Senate on Thursday.
Date for Your Calendar
Friday 3/8
The Latest Jobs Report: February Update
The Bureau of Labor Statistics (BLS) has released the jobs report for February. The consensus estimate predicts a rise of 200,000 in nonfarm payrolls, with the unemployment rate expected to hold steady at 3.7%.
January Surprises with Strong Jobs Growth
On Feb. 2, January jobs growth took everyone by surprise with an increase of 353,000 jobs, more than double the initial expectations. This trend of outperforming expectations has been consistent for the past two years.
Market Reaction and Performance
Initially, the stock market sold off in reaction to the data, fueled by concerns that the Federal Reserve might delay cutting interest rates. However, by the end of the day, the market had rebounded and even ended in the green. The market performed exceptionally well in February, with a 5.2% increase in the index – marking its best February performance since 2015.