Stocks managed to squeeze out a tiny gain in April to snap its two month losing streak. The S&P 500 ended the month of April up 0.5%. It is still negative for the year and well off its January highs.
There is just a lot of uncertainty out there and investors don’t like uncertainty. The tariffs could be an issue but companies tend to find ways around government intervention. For me, I think the big issue is Trump, the circus that is the White House, and most importantly, what the findings of the Mueller investigation are going to reveal. As far as I am concerned, the sooner the investigation comes to a close, regardless of the outcome, the better. Otherwise, the markets are going to have a tough time.
Bonds moved down in price modestly in March. This is normal behavior: bond prices tend to rise when stock prices drop and vice versa. This is a good reason to be properly diversified in different asset classes (stocks, bonds, real estate, etc.). You want to own stuff that zigs when your other stuff zags.
The 10 year US Treasury note finally crested above the 3% yield level late in April and now sits just below that rate. This yield is important because investors consider it the risk free rate and it is used to compare risk with other investments, such as stocks. When this rate rises to a point where it isn’t worth the risk to own stocks, investors sell stocks and buy treasuries. We are not at that point but it is something I am monitoring.
As I mentioned last month, rising interest rates is the path of least resistance over the next several years so if you are investing in bonds, make sure their maturity is 3 years or less. Also, try to avoid investment vehicles that have no maturity constraints, such as bond mutual funds. Please read my recent blog on this topic for more details: Why Bonds May Be More Riskier Than Stocks.
On the savings side, rates are starting to creep up with a little more speed but they’re certainly in no hurry.
Currently, the average savings account is paying 0.09% and the average money market account is paying 0.18%.
The 1 year CD interest rate is now averaging 2.10% (up from 1.96% last month) and the 5 year CD rate is at 2.61%(up from 2.49% last month).
Mortgage rates remained above 4%, with the 30 year rate at 4.43%. These rates could accelerate higher if we start to see increased wage growth and consumer price inflation. Historically, rates are still extremely low but the path of least resistance is still up, for right now.
Oil prices continued to move upward in April. Price per barrel rose over 6% and now sits at $68.57.
OPEC is still trying to remain relevant but they are becoming less so as the U.S. is set to become the largest oil exporter in the world. As long as oil prices stay at these levels or higher, we will reach that milestone.
Nationally, gasoline prices are averaging about $2.81 per gallon. FYI, a year ago, we were paying $2.36. Lawton, OK has the cheapest gas in the country at $2.36.
Check out the prices at the pump in your area: Gas Buddy.
Outlook
Events on the horizon that could move the markets in the near term:
- Russian Investigation: FBI seized documents from Trump’s lawyer, Michael Cohen, in April. Since then, it has been relatively quiet with the exception of the President voicing his views on twitter. The allegations of secret meetings with Russians and Arab princes is right out of Hollywood. The next big focal point is the Trump interview with Mueller. When it goes down, get your popcorn ready!
- Escalating Tensions with North Korea: Less than 6 months ago, Trump was calling Kim Jong Un “little rocket man” and we were talking about going to war with NK. Now, Trump calls Kim Jong Un an honorable man and both Koreas are meeting to finally end the Korean War. This went from being a big negative for the markets to a nice positive.
- Tax Law Effects: Companies are now reporting their Q1 results, their first since the new tax laws went into effect. I’m sure much of this good news was already priced into the market but we still could see some decent surprises.
- Infrastructure Bill: We can probably kiss this goodbye for this year. Word is that Congress will not be able to agree on a bill before the end of the year. I hope they can break it up into smaller bills and also make it budget neutral. They have 3 months before they take their month off in August to get something going.
- Trade Wars: It looks like we are using the tariffs as a negotiating tool. The tariff scare definitely had a bigger bark than its bite. Now, we’ll see which countries come to the table to level the playing field for us. I know South Korea has already helped trade in our favor so it seems to be working.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
