Finimize - 🚀 Buying the dip paid off

What’s going on here?

German carmaker Volkswagen (VW) is considering closing plants in its home country for the first time in its 87-year history.

What does this mean?

VW admitted it needs a major overhaul across all its brands, after spending years ignoring the fact that it’s been producing more vehicles than it can sell. But at least the carmaker has company. Many of Europe’s biggest brands are trailing behind Tesla and Chinese rivals, while the region’s government subsidies for EV makers are drying out. Case in point: Stellantis – owner of Peugeot, Citroen, and Vauxhall – saw its profit halved in the first half of this year.

Why should I care?

For markets: They’re all in this together.

Car sales in Europe are still lagging nearly a fifth behind pre-pandemic levels, which has left VW, Stellantis, and Renault running a combined 30-plus factories that are losing money. Add in the mammoth costs of competing with souped-up EV models, expensive energy bills, and a shrinking pool of buyers in China, and those carmakers look set to keep bleeding cash. No wonder Renault’s CEO has pushed for a European alliance to help the region compete in the EV space. It may be too little, too late, though: the rate at which drivers are swapping gas for electricity is already slowing down.

The bigger picture: The US is hogging the limelight.

Many analysts expected investors’ newfound skepticism of AI to benefit Europe’s stock market, but the masses have been keeping their cash stateside – just in cheaper sectors than Big Tech. In fairness, Europe leaves much to be desired: Germany – the region’s workhorse – saw its economy shrink last quarter, while key industries like luxury goods and cars are suffering due to China’s thriftiness. Still, Europe’s Stoxx 600 index is trading roughly a third cheaper than America’s S&P 500, so it could win over cost-conscious investors who still see joie de vivre in Europe’s future.

What’s going on here?

A record number of 401(k) retirement accounts hit the $1 million mark, after Americans put their trust in US stocks.

What does this mean?

Around 497,000 of the 401(k) retirement accounts held at Fidelity Investments were worth at least $1 million at the end of last quarter – nearly a third more than the same time last year. That has a lot to do with the US stock market: the Nasdaq index is around 7% shy of its peak, while the S&P 500 is a mere 1.7% away. And as stocks have gone up, that’s boosted the balances of 401(k)s and bank accounts alike. It’s helped, too, that investors have been steadily buying stocks this year, with many seizing the opportunity to “buy the dip” when markets took a tumble last month. Now, JPMorgan says stocks now make up around 42% of US household wealth – the most seen on records dating back to 1952.

Why should I care?

Zooming out: The professionals are backing America, too.

According to a Bank of America fund manager survey, hefty tech companies have remained popular with the experts lately. But Big Tech aside, they’re more excited about big but (relatively) cheaper firms, which stand to benefit more as interest rates come down. Plus, 76% of the fund managers now expect a “soft landing” – when the economy slows down without causing a recession. That might explain why they’ve snatched up more bonds, whose prices rise when interest rates fall.

For you personally: Age gracefully.

The outlook seems encouraging for US stocks, but investors should still review their portfolio allocation and investment strategy at least once a year. If you have a plan to stick to, it’s easier to resist the temptation to trade out of pure panic during market turmoil. That’s especially important as retirement nears: with less time to make back any losses, an emotional mistake could derail your cruise-and-snooze plans.