Day: September 19, 2024

NEW YORK (AP) — The Federal Reserve has cut its benchmark interest rate from its 23-year high, with consequences for debt, savings, auto loans, mortgages and other forms of borrowing by consumers and businesses.

On Wednesday, the Fed announced that it reduced its key rate by an unusually large half-percentage point, to between 4.75 and 5 percent, the first rate cut in more than four years.

The central bank is acting because, after imposing 11 rate hikes dating back to March 2022, it feels confident that inflation is finally mild enough that it can begin to ease the cost of borrowing. At the same time, the Fed has grown more concerned about the health of the job market. Lower rates would help support the pace of hiring and keep unemployment down.

“Recent indicators suggest that economic activity has continued to expand at a solid pace,” the Fed said in a statement. “Job gains have slowed, and the unemployment rate has moved up but remains low. Inflation has made further progress.”

More Fed rate cuts are expected in the coming months, with the steepness of the reductions dependent on the direction of inflation and job growth.

“We know that it is time to recalibrate our (interest rate) policy to something that’s more appropriate given the progress on inflation,” Fed Chair Jerome Powell said at a news conference. “The labor market is actually in solid condition and our intention with our policy move today is to keep it there.”

“We don’t think we’re behind — we think this is timely,” he added. “But I think you can take this as a sign of our commitment not to get behind.”

What do the Fed’s rate cuts mean for savers?

Although taking action now to try to capitalize on lower rates, like shifting money out of a certificate of deposit or refinancing a mortgage, “might be warranted for some, you shouldn’t feel obligated to completely change up your financial strategy just because rates move lower,” said Jacob Channel, a senior economist at LendingTree.

“Act cautiously and responsibly,” Channel said, “and don’t make any rash decisions based on a single Fed meeting or economic report.”

Eventually, yields for savers will decline as the Fed lowers its benchmark rate.

“As attractive as yields on savings instruments have recently been, it’s wise not to hold too much in cash because these are short-term instruments and their yields are ephemeral,” said Christine Benz, director of personal finance at Morningstar. “The really great yields that we’ve had recently may go lower.”

If you don’t have a need for cash right away, you can continue to lock in what are “still pretty decent yields on offer,” she said. In that case, “longer-term certificates of deposit might make sense.”

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“Lower interest rates make it harder to maximize savings and preserve the capital built while interest rates have been higher,” said Matt Brannon, a personal finance expert at MarketWatch guides. “An easy short-term move to protect your savings is to shift your funds into a high-yield savings account, which offers higher interest rates than traditional savings accounts… These types of savings accounts will still help you to preserve capital due to comparatively higher interest rates.”

How will the rate cuts affect credit card debt and other borrowing?

“While lower rates are certainly a good thing for those struggling with debt, the truth is that this one rate cut isn’t really going to make much of a difference for most people,” said Matt Schulz, a credit analyst at LendingTree.

That said, the Fed’s declining benchmark rate will eventually mean better rates for borrowers, many of whom are facing some of the highest credit card interest rates in decades. The average interest rate is 23.18% for new offers and 21.51% for existing accounts, according to WalletHub’s August Credit Card Landscape Report.

Still, “the best thing people can do to lower interest rates is to take matters into their own hands,” Schulz said. “Consolidating your debts with a 0% balance transfer credit card or a low-interest personal loan can have a far bigger impact on your debt load than most anything the Fed will do.”

How about mortgages?

The Fed’s benchmark rate doesn’t directly set or correspond to mortgage rates. But it does have a major indirect influence, and the two “tend to move in the same direction,” said LendingTree’s Channel.

To wit, mortgage rates have already declined ahead of the Fed’s predicted cut.

“It goes to show that even when the Fed isn’t doing anything and just holding steady, mortgage rates can still move,” he said.

Channel said that the majority of Americans have mortgages at 5%, so rates may have to fall further than their current average of 6.46% before many people consider refinancing.

And car loans?

“With auto loans, it’s good news that rates will be falling, but it doesn’t change the basic blocking and tackling of things, which is that it’s still really important to shop around and not just accept the rate that a car dealer would offer you at the dealership,” said Greg McBride, an analyst at Bankrate. “It’s also really important to save what you can and be able to try to put as much down on that vehicle as you can.”

McBride predicts that the rate cuts and the avoidance of a recession will lead to lower auto loan rates, at least for borrowers with strong credit profiles. For those with lower credit profiles, double digit rates will likely persist for the remainder of the year.

Robert Frick, corporate economist for Navy Federal Credit Union, said that while he thinks a rate cut will work its way into auto loans, it probably won’t happen immediately and people with higher credit scores will likely benefit first.

Loans for new vehicles right now are averaging 7.1%, with used vehicle loans at a much higher 11.3%, according to Edmunds.com.

Those rates, coupled with still-high prices, have sent many possible buyers to the sidelines waiting for rates to drop. Partly as a result, U.S. new vehicle sales rose only a sluggish 2.4% through June.

High prices and rates have also led to more delinquent payments and defaults on auto loans, especially among people with lower credit scores. As a result, Frick said, many lenders will probably try to keep rates high to cover potential losses.

“Rates will be coming down, but we shouldn’t expect them to come down quickly overall,” he said.

Frick suggests waiting for additional Fed rate cuts to come through if possible, especially if you’re buying a used vehicle.

Jeff Schuster, vice president of automotive research for Global Data, said he doubts that modest rate cuts by the Fed will be enough to draw many buyers off the sidelines, unless automakers offer their own low-interest loans and other discounts.

“I think it’s going to take a couple more cuts before we get any substantial relief for those consumers,” he said.

What’s going on with inflation and the job market?

Consumer prices rose 2.5% in August from a year earlier, down from 2.9% in July — the fifth straight annual drop and the smallest since February 2021.

Hiring picked up a bit in August, and the unemployment rate dipped for the first time since March. Employers added 142,000 jobs, up from 89,000 in July. The unemployment rate declined to 4.2% from 4.3%, which had been the highest level in nearly three years.

Those signs indicate that the job market, though cooling, remains sturdy.

The rate at which the Fed continues to cut rates after September will depend in part on what happens next with inflation and the job market, in the coming weeks and months.

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Elon Musk has humorously reacted to fellow billionaire and “Shark Tank” famed investor Mark Cuban‘s interest in purchasing X, formerly known as Twitter.

What Happened: Musk, who bought Twitter in 2022 and renamed it to X, responded to a post by DogeDesigner highlighting Cuban’s wish to acquire the platform. Musk left a laughing emoji in the reply section of the post.

Don’t Miss:

Why It Matters: Cuban recently expressed his interest in acquiring both Rupert Murdoch’s Fox News and Elon Musk’s ‘X’.

Cuban stated, “If I had enough money to do it, which I don’t, I’d buy it in a heartbeat,” referring to his desire to purchase ‘X’ and Fox News.

In August, Cuban criticized Musk during an interview on “The Daily Show,” suggesting that the Tesla founder might have manipulated the platform’s algorithm. Musk responded with an emoji insult, escalating the dispute.

Despite their differences, Cuban has acknowledged Musk’s significant influence through his ownership of X. He described Musk as “the most influential man in the world” due to his control over the social media platform.

Keep Reading:

This article Elon Musk Reacts After Mark Cuban Says He Would Buy X ‘In A Heartbeat’ originally appeared on Benzinga.com

(Bloomberg) — Vanguard, one of the world’s biggest asset managers, is buying the dollar this week on the view that market bets on Federal Reserve interest-rate cuts are overdone.

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The firm, which has $1.7 trillion in actively managed funds, closed a short position on the greenback that it opened in July because it expects the Fed’s easing cycle to be less aggressive than markets are pricing. That’s regardless of whether policymakers reduce rates by a quarter or a half point later on Wednesday, according to Ales Koutny, head of international rates at Vanguard.

“We’ve seen significant short positions built up on the dollar, but the data in the US remains robust,” Koutny said. “Unless data deteriorates significantly from here, we believe the Fed will deliver fewer cuts than what the market expects.”

The size of the Fed’s first interest-rate cut in four years has dominated bond markets for weeks. Wagers on a bigger move have gained favor after a report and commentary from William Dudley — Bloomberg Opinion columnist and former New York Fed President — suggesting policymakers could go for more aggressive action.

Koutny expects a quarter-point rate reduction on Wednesday and said the US economy doesn’t warrant cuts aimed at staving off recession. Swaps are pricing a 52% chance of a half-point cut, and a total of 114 basis points of easing toward the end of the year.

Vanguard is now slightly long on the greenback, and likes to bet on the dollar versus the Swiss Franc as it sees the pair rising to 0.90 from around 0.84 currently. It’s sticking to a long position on the pound, but against the euro instead of the dollar.

Koutny said the market is probably underpricing the extent of rate cuts by the European Central Bank. He’s put on a relative trade using short-dated securities in the US and European markets that pays out if investors trim bets on Fed easing or boost wagers on ECB cuts.

Koutny expects the spread between the two forward swaps contracts to go to minus 150 basis points from around minus 98 basis points now.

“We think in a scenario where global growth holds OK, there is too much priced for the Fed,” he said. “If growth deteriorates further, there is too little priced for the ECB.”

(Adds Koutny’s US-Europe trade from seventh paragraph.)

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Apple (NASDAQ: AAPL) has moved back into the top spot as the largest company in the world by market cap. It’s gone through some stunning ups and downs, but if you’d bought shares at the initial public offering (IPO) back in 1980 and held on, you’d have a lot more shares, and a lot of money. Let’s see just how much.

Holding for the long term

Apple went public in December 1980 at $22 per share. Like pretty much any stock over a nearly 45-year period, Apple stock has climbed and crashed several times. For example, it lost 21% of its value between 1989 and 1996 — a long period for an investor to hold on to a stock that’s losing. But if you did, you’d have quite a windfall today.

Since that time, Apple has developed an incredible tech platform with a strong moat in its differentiated systems and applications. It has a strong, loyal fan base that only buys Apple products and consistently moves up to new drops and launches. Just this week Apple released its latest software update, iOS18, with a swarm of new upgrades and features. It’s also investing in artificial intelligence (AI) to stay competitive in the tech race.

That’s why Apple stock has skyrocketed over time and gone through five stock splits: three 2-for-1 stock splits in 1987, 2000, and 2005; a 7-for-1 split in 2014; and a 4-for-1 split in 2020. Each IPO share would have been worth $0.10 split adjusted, and you’d own 224 shares today. At today’s prices, that’s worth $48,455.

In short, the stock has appreciated more than 2,200 times since its IPO. For further perspective, if you had instead invested $1,000 in the stock at its IPO, your investment would’ve been worth $2.2 million today, excluding the dividends that were paid to you over the years.

Should you invest $1,000 in Apple right now?

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*Stock Advisor returns as of September 16, 2024

Jennifer Saibil has positions in Apple. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.

If You Bought 1 Share of Apple Stock at Its IPO, Here’s How Many Shares You Would Own Now was originally published by The Motley Fool

Coca-Cola (NYSE: KO) is a great company, but the stock has risen more than 20% over the past 12 months. Some investors might see that quick rise and pass the stock by, looking for cheaper alternatives. That’s understandable, but what stocks should you be looking at if you have chosen to forget about Coca-Cola?

How about PepsiCo (NASDAQ: PEP) or Archer-Daniels-Midland (NYSE: ADM)? Here’s why both of these stocks might be good choices for investors now.

What’s so special about Coca-Cola?

Coca-Cola has some very loyal fans on Wall Street, including Berkshire Hathaway CEO Warren Buffett. Buffett has owned the stock for decades, and for good reason. Coca-Cola owns one of the best-known brands in the world. It is a strong marketer, has a robust distribution network, and has the size and scale to buy upstart competitors to expand its own portfolio.

One big proof point of the company’s success is its status as a Dividend King, with over six decades of annual dividend increases behind it. You don’t become a Dividend King by accident. It takes strong performance in both good times and bad to achieve that elite status.

That said, Coca-Cola has been doing pretty well of late, too. Revenue has grown around 7.5% a year, annualized, over the past five years. Annualized earnings growth over that span was a bit over 10%. So there are good reasons why investors like the stock today. So the 20% stock price advance over the past 12 months isn’t exactly shocking.

Still, at this point, Coca-Cola looks a little on the expensive side, with its price-to-sales (P/S) and price-to-earnings (P/E) ratios both slightly above their five-year averages. If you don’t mind paying full fare, or perhaps a little bit more, for a great company, Coca-Cola would be a perfectly fine stock to own. But if you have a value bias, you’ll probably want to look elsewhere.

PepsiCo is similar to Coca-Cola in many ways

If you know the Coke brand, you almost certainly know the Pepsi brand, too. It plays second fiddle to Coke in the soda space, but don’t take that as a sign that PepsiCo is a bad company. Far from it. Not only is it a strong No. 2 player in the beverage space, but it is No. 1 in salty snacks with its Frito-Lay division. PepsiCo also makes packaged food items in its Quaker Oats business. If you are a fan of business diversification, you’ll probably like PepsiCo more than Coca-Cola!

Perhaps it doesn’t need to be said, but PepsiCo is every bit as strong as Coca-Cola on the distribution, marketing, and business scale fronts. Like Coca-Cola, PepsiCo is a valued partner to retailers around the world. And, like Coca-Cola, PepsiCo is a highly elite Dividend King.

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What PepsiCo isn’t doing right now, however, is performing as well financially. Its earnings are actually lower over the past five years. Investors have reacted by avoiding PepsiCo stock, which is basically flat over the past 12 months. But that’s opening up an opportunity for long-term income investors.

PepsiCo’s dividend yield is 3% compared to Coca-Cola’s 2.7%. And PepsiCo’s P/S and P/E ratios are both below their five-year averages. In other words, it’s a similarly strong company, but it’s cheaper today because it isn’t hitting on all cylinders.

But given the long-term success the company has achieved, highlighted by over 50 years of annual dividend increases, it seems highly likely that PepsiCo will muddle through this rough patch in stride — and pay you well to wait while it figures out how to get back on track.

Archer-Daniels-Midland is almost a Dividend King

Archer-Daniels-Midland’s dividend yield is 3.3%, better than Coca-Cola’s and PepsiCo’s.While it isn’t a Dividend King just yet, it is right on the cusp with 49 annual dividend increases under its belt. That said, Archer-Daniels-Midland is a very different kind of consumer staples company. Unlike Coca-Cola and PepsiCo, Archer-Daniels-Midland is a supplier to other companies that make food products, selling things like oilseeds, corn, and wheat.

The stock has fallen around 25% over the past year. Financial results of late have been pretty rough since the top and bottom lines are both in a downtrend. To be fair, however, commodities are a big part of the business, so revenue and earnings can be a little volatile here. This weak patch really isn’t all that shocking after the inflation spike not too long ago.

Still, investors are reacting and, if you are a long-term dividend investor, you might want to step aboard while others are fearful. Archer-Daniels-Midlands’ P/S and P/E ratios are both below their five-year averages.

The key here is that, given the long history of annual dividend increases, Archer-Daniels-Midland clearly knows how to survive through commodity cycles while continuing to pay investors well. If you can stomach a little near-term uncertainty, this stock offers a much more attractive dividend yield than Coca-Cola.

Watch Coca-Cola, but consider buying PepsiCo and Archer-Daniels-Midland

There’s nothing wrong with Coca-Cola as a business. The problem is simply that the stock is a bit expensive today. If you aren’t willing to pay up for a great company, then you should consider two similarly strong dividend stocks in PepsiCo and Archer-Daniels-Midland.

Neither is performing as well as Coca-Cola is today, financially speaking, but their strong dividend histories suggest that they will figure out how to get their businesses back on track eventually. You’ll be paid well to wait while they do that.

Should you invest $1,000 in PepsiCo right now?

Before you buy stock in PepsiCo, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and PepsiCo wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $708,348!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of September 16, 2024

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.

Forget Coca-Cola: These Unstoppable Dividend Stocks Are Better Buys was originally published by The Motley Fool