Over the past year, used car prices have experienced a significant increase, with a 30.4% rise due to the ongoing microchip shortage. This surge in prices has varied across states, with Connecticut witnessing the highest increase at 35.2% and Wyoming having the lowest at 18.9%. Interestingly, seven of the ten states with the highest price increases are coastal states.
Geopolitical Factors and Price Increases
New geopolitical factors are expected to exacerbate and prolong the currently used car price increases. As a result, consumers are advised to either maintain their current vehicle or purchase a used vehicle that isn’t in high demand. Being flexible with factors such as color and trim can also help in finding a better deal.
Used Car Prices and the UK Stock Market
Despite the rising tide of used car prices, the FTSE 100 is currently flirting with its record high, and UK stocks have made a good start to 2023. UK stocks are prized for their cash-generating ability and pricing power in a high-inflation environment. Tobacco, pharma, arms, and finance stocks tend to lag in high-growth stock markets but performed well in 2022.
UK Index Performance and Inflation Battle
The Morningstar UK index rose by 1.24% in 2022, while the Morningstar Global Markets declined by 13%. The UK index is up just over 4% so far in 2023, while the global index is up 5.21% (in dollar terms). Bank Governor Andrew Bailey told MPs last week that we could see a reprieve in the inflation battle fairly soon as energy costs fall.
Valuation of UK’s Biggest Stocks
Morningstar analysts do not believe that the UK’s biggest stocks are overvalued. Looking at the top 20 holdings in the Morningstar UK index, only three are trading above their fair value. Ten of the 20 are considered undervalued, with 4 and 5-star ratings. The 287-name index has a P/E ratio of 10.17, which is modest in historical terms. Some big names like BP (BP.) and Lloyds (LLOY) are actually trading below their 20-year averages.