January 31, 2023

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TOGETHER WITH

Good day. U.S. FICO credit scores range from 300 (poor) to 850 (exceptional). Can you guess what credit score you typically need to get the best loan rates? a. 670, b. 760, c. 850. Follow the wave 🌊 below for the answer.

The money topics for today are:

Forget inflation, it's about earnings now
How your credit score affects your car insurance rates
What to do with those extra paychecks

MARKET OUTLOOK

Forget Inflation, It's About Earnings Now

There's seasonality to everything in life, and so the stock market is no exception to this rule. Company earnings season is upon us yet again, and analysts are anticipating a heftier onus to be placed on them this time around as previous catalysts fade a bit.

And we're learning that if it's not one thing, it's another.

Earnings season 2023 — round 1

Waning catalysts: In 2022, inflation drove the markets — recall the Nasdaq's 7% upswing on November 10th after the CPI report? As inflation worries wane further and investors become more comfortable with the inevitable growth slump ahead, the market's focus is shifting to company earnings to see what more they tell us about the future.
Earnings hold a heft weight: Although inflation reports have often stolen the show, earnings reactions are consistently more volatile. BofA strategists have noted that the S&P 500's reactionary swings to both company earnings beats and misses have outpaced its reaction to both CPI and Fed meeting minutes releases.
Expectations: For this round, the earnings of S&P 500 companies are expected to decline -4.6% in aggregate for the 4th quarter of 2022 — the first quarter-over-quarter decline since 2020. Elsewhere, net profit margins are slumping a bit to 11.4%, which is below last year's 12.4%, but in line with the 5-year average.
Sector growth: Of all 11 official market sectors, consumer discretionary is expected to report the highest year-over-year (YoY) earnings growth rate at 35.8%. This is followed by the industrials and financials sectors at 13.9%, and the two sectors expected to report a decline are the air freight and logistics industries.
Observations: Consumer discretionary growth is expected largely due to a few underlying industries within it that have rebounded, such as internet marketing (+3,547%), restaurants & leisure (160%), and projected growth by big retailers like Amazon, which account for over half of the sector's expected YoY 35.8% jump. And although bank activity and consumer transactions have slowed in the midst of a downturn, banks are still raking in the interest payments as rates rise, with some like J.P. Morgan jumping by 48%.

For the rest of 2023

Although we do find ourselves in a contractionary year, earnings are expected to rise. Amidst fears of a recession, analysts expect S&P 500 companies to report single-digit growth of about 5.5% this year. This figure falls below the trailing 10-year average of 8.5% that we saw over the last decade.

The big picture? Growth is still there, it's just moving a little slowly — it's taking its time to recoil.

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

Valuing Stocks

Investing Basics

5 mins

PERSONAL FINANCE

How Your Credit Score Affects Your Car Insurance Rates

Unless you're Dave Ramsey, you're probably used to your credit score playing a pivotal role in all things lending when it comes to your personal finances. Not only do credit scores help get you approved for a loan, but they determine the terms of the agreement too.

But did you know that your credit score can determine the cost of more than just your interest payments? Believe it or not, credit scores can actually impact your car insurance rates too.

How does that work?

The logistics: In all but 4 states, car insurance companies are allowed to factor in your credit score when calculating your premium. Why? According to the data used by insurance companies, policyholders with "poor" credit tend to file more claims than those with excellent credit, thereby assessing them as higher risk.
The difference: The gap between the average annual premium paid by someone with poor credit as opposed to excellent credit is wide. While those with great credit come in with an average annual premium of $1,506, policyholders with poor credit pay an average of $3,147 per year — a difference of over $1,600.
Worth considering: The only 4 states to have outlawed this practice are California, Hawaii, Massachusetts, and Michigan. Anywhere else is fair game. Elsewhere, credit scores are also known to impact your insurance rates on other insurance policies such as homeowners or renters insurance.
Is there a way around this? When it comes to car insurance, your best bet at avoiding the credit correlation is to go with a usage-based insurance policy, also sometimes known as a "pay-per-mile" policy. As for homeowners insurance, the only safe haven is to live in one of those 4 states + Maryland.
The best tip: Overall, the simplest and best way to avoid having your credit negatively impact your insurance premiums is to take good care of your credit. Develop a plan to pay off bad debts and get your utilization rate down. Always pay the minimum, never miss a payment, and eventually become debt free.

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

Buying Car Insurance

Cars

6 mins

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MONEY TIP

What To Do With Those Extra Paychecks

The most common way U.S. employees get paid? Bi-weekly. It's estimated that roughly 45.7% of us get paid on this time frame, followed by weekly at 31.8%, semimonthly at 18%, and the rare monthly paycheck at just 4.4%.

But what about those months when you end up with that oddball extra check? For bi-weekly earners, you'll have at least two of those months in which you take home 3 checks over the course of 2023, so what should you do with that extra money?

A few ideas

Don't not plan: Not having a plan for extra income is a recipe for disaster, and it becomes very easy to waste or mismanage the money. Give those funds a name before they even hit your account and thank yourself later.
Pay debt first: Depending on where you find yourself financially, paying down debt should be the first place your extra cash goes if you have it. Allocate some or all of your additional pay that month to get rid of or chip away at the peskiest debts you own.
Save extra: If your emergency fund isn't yet fully established, or maybe you just want to pad the savings pocket a little more, then tossing that extra income into savings is always a great idea.
Invest the rest: Whether you plow it into an ETF or stock you love or use it to get closer to maxing out a retirement account, if you've checked all the boxes above, investing that money is always a welcome way to play it.
Save for something special: Last but not least, if you find yourself in the position to be able to put away money for a special purchase, do it now. Whether it's for an upcoming necessary expense, a vacation, or just a want, using some extra money to save in advance is nothing to be shameful of.

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

Budgeting Basics

Budgeting & Saving

6 mins

🌊 BY THE WAY

📊 Answer: 760 it is. The optimal score that will allow you to receive the highest credit limits and lowest interest rates, is actually 760. Once you achieve a 760 (according to FICO) score you will receive the same rates and limits as someone with an 800, 825 or even the ultimate 850 (CNBC)

🚙 Major insurers plan to drop two car models' coverage due to thefts (Yahoo Finance)
🪙 ICYMI. How CPI measures the cost of living (Finny)
📈 S&P 500 gains on Tuesday as it heads for best January since 2019 (CNBC)

📊 Finny lesson of the day. Given the index's great month, and if you haven't already, take this short lesson on what the S&P 500 index is:

What is the S&P 500?

Investing Basics

6 mins

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Finny is a financial wellness platform for employees. The Gist is Finny's twice-a-week (Tues & Thurs) newsletter covering personal finance, market trends and investing insights. The content team: Austin Payne, Carla Olson. Finny does not offer investment and stock advice.

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