🐻 The market pullback
September 21, 2021
The Gist

Happy Tuesday. Based on data released by the Census Bureau, the median US household income in 2020 compared to 2019: a. increased 2.9%, b. stayed the same, c. decreased 2.9%. Check the answer in the "Trending" section below.

Here are the personal finance topics for today:

  • The boy who cried pullback 
  • Household debt is the heirloom that appreciates 
  • The scoop on paycheck advance apps


The boy who cried market pullback

Source—Rose Wong

Some market analysts and prognosticators have been calling for a pullback since last year’s exaggerated pandemic rebound, and now it may finally be their time to shine.  

Although predicting the patterns of an irrational, sentiment-driven market is still an inexact science, there are a lot of indicators being used to make forecasts like these with good faith and history behind them. These stock market meteorologists are a bit more reputable than the boy who cried wolf.

Surveying the landscape

  • This year alone, the S&P 500 has notched 54 record highs, a number not seen since 1995.
  • Year-to-date, the index's deepest pullback has been only about 4% which, if maintained, would mark only the third year in the history of market data we’ve escaped without a 5% kickback. 
  • The market’s CAPE ratio (cyclically adjusted P/E) is the highest it’s been since the 2000 dot com bubble at around 38. Simply put, the CAPE ratio helps to assess whether a market or company is overvalued or undervalued over economic cycles; it's a P/E ratio calculated for ten years versus a particular date or year. That helps to give investors a broader picture of the market's sustainability. A higher CAPE ratio usually indicates a market or company's price isn't in tune with its earnings. 
  • Morgan Stanley is going as far as to predict cash will outperform US equities, government bonds, and credit over the next year. That’s top-tier fear.  
  • New York Life Investments is following suit and also going heavily international with its equity portfolio in nations like Canada and Europe, which they perceive to have much more upside.

Source: A Wealth of Common Sense

Making sense of it

Financial institutions are seemingly taking the position that it’s going to be slim-picking in the US markets over the next 12 months. With high-flying ratios and indices that are bumping up on all-time highs even more so than usual, they seem to be moving overtly defensive in their strategies. 

There’s a lot of news investors will have to sift through in the coming months too—inflation data, tapering, covid variants, a redlining housing market, fear and contagion sweeping financial markets from the troubled China property market, and inevitable unforeseen factors—with each representing a potential correction catalyst.

🧮 In due diligence (DD) mode and need a refresher on what fundamental analysis means?   Take this bite-sized lesson in 6 minutes: 


Household debt is the heirloom that appreciates

Debt makes the world go round. Okay, more like the economy and modern life, but you get the gist. It’s because of debt and the debated fractional reserve lending system that we’re able to start a business, buy a car, or get a mortgage. For better or for worse, debt kind of runs the country. 

Debt can be a good investment when it’s owed to you, and not always when you owe it. Although household debt doesn’t get ‘passed down’ in the most traditional sense, the proverbial financial burden of debt placed in each subsequent generation is something that’s been increasing over time.

It wasn’t always this way

Debt hasn’t always been as conveniently accessible as it is today. Credit cards didn’t exist until 1950, most Americans didn’t even own a car up until that time, student loans owed by graduation have increased by 326% since 1970, and mortgage debt has increased exponentially over the last 70 years. 

Fun fact: In 1862 the US government actually gave away 270 million acres of land with Lincoln’s Homestead Act. That came out to about 160 acres of land per family that could be passed down over generations, without a loan. In 2021, essentially all land is accounted for. Things haven’t always been this compartmentalized and debt-oriented.

So, the generational debt snowball grows

According to data from Experian, Generation X is at its peak debt-saddled stage of life right now, holding an average household total of over $140,000 each, mostly consisting of mortgages. Behind them are the Baby Boomers, who average a $97K per household number made up of again, mostly mortgage debt, but growing at a lesser rate. 

Millennials are an average of $87K in the hole, but that number is growing at the second-highest rate amongst the generations, and it’s reasonable to expect this age cohort to someday outdo Gen X. A large portion of their debt is consumed by student loans and credit card debt, as is the case with Gen Z, who despite their low total of $16K, saw their debt jump by 67% from 2019-2020.

Source—Visual Capitalist, US Household Debt, by Generation

What do we do with this information? 

Some things are just interesting to know and nothing more, but there is one takeaway we can glean from this data, and it’s being aware of how easy it is to fall deep into debt. Not all debt is bad debt, but even good debt can go bad if mismanaged. So we should be exceedingly cautious about taking on more liabilities.

Think twice about paying that tuition just because it’s been a dream school, make sure that mortgage isn’t 50% of your income and maybe don’t use that credit card on the new iPhone 13 just yet. We can’t control the financial system, but we can control our personal finances.

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The scoop on paycheck advance apps

Source—NBC News

Paycheck advance apps, like Earnin or Dave, are gaining in popularity because they let you borrow a small amount of your expected earnings to cover costs for things you may not immediately have money for, like groceries, a telephone bill, or even a car repair. The idea is that you borrow a small amount of money for a short period of time, usually in exchange for a small fee, and repay it when you get your next paycheck.

Some of these paycheck advance apps have caveats that are often dismissed from the advertisements and only found in the fine print, and they’re worth scrutinizing before engaging.

A few tips

  • Fees or... tips: Some of these apps will reframe the word fees by calling them tips, which are optional contributions you can make when taking out a small loan. That’s definitely an improvement over late fees but can easily add up to a ludicrous APR if you’re participating frequently. 
  • They’re not sustainable as a forever solution: A paycheck advance app can certainly be useful and beneficial in times of need, but it serves as a bandaid to the bigger issue, and we would likely be wise to prevent ourselves from becoming dependent on them. 
  • Questionable direct access: These apps usually withdraw the funds directly from your bank account—access even payday lenders don’t usually have. This isn’t necessarily wage-garnishment level, but certainly an auto-draft you might not be comfortable with.


Today's Movers & Shakers

  • Uber (+5.7%) revised its financial outlook increasing its range for bookings
  • J&J (+0.8%) after the firm’s booster shot is shown to increase efficacy to 94%
  • Apple (+1%) after WSJ said that the iPhone maker is working on features to identify depression and cognitive decline  
  • Energy stocks are rising as crude recovers; Exxon and Chevron are up 1%
  • Enphase Energy (+2%) after KeyBanc initiated coverage with an OW (overweight) rating
  • Vail Resorts (+1.7%) after KeyBank upgraded the stock to OW 
  • Big Lots (-1.3%) after Piper Sandler downgraded the stock to neutral

This commentary is as of 9:00 am EDT.


  • Answer: Census figures show that the median American household income was about $67,500 in 2020, down 2.9% from the prior year (WSJ)
  • Paying off debt, saving money and retirement planning: How to prioritize your financial goals (CNBC)
  • Finny lesson of the day. We've covered this recently, but given yesterday's market sell-off, take this bite-sized lesson if you haven't already: 

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The Gist is Finny's newsletter to our community members who are looking to make and save more money, protect their finances and be their own bosses! Finny does not offer investment or stock advice. The Gist is sent twice a week (Tues & Thurs). The editorial team: Austin Payne and Chihee Kim. Thanks to Ashu Singh for Today's Movers & Shakers.

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