Stocks ended the month flat after having a nice run up in the beginning of June. However, once tariff talk became reality, stocks settled back down but did manage to squeeze out a tiny gain in June. The S&P 500 is still up about 1.7% for the year but still well off its January highs.
If you’re wondering why stocks have floundered recently, look no further than the White House. Trump’s ready, fire, aim strategy with tariffs will pretty much negate any of the benefits that the corporate tax reform had on our economy. Also, the contradictory economic policy statements between the president and his advisers are not a confidence builder for investors. All of this coupled with indictments in the Mueller investigation and daily tweet storms make for a lot of uncertainty. And stock markets do not like uncertainty. I suspect this is going to go on until the elections in November so invest accordingly.
Bonds dipped a little in June except for long term government bonds. As in May, the best performers were the bonds with the lowest risk, such as US government bonds and bonds from high quality companies.
The yield on the 10 year US Treasury note drifted lower yet again in June. When the big money gets nervous, this is their safe haven. A lot of money left the stock market this past month so that is one of the reasons this rate is staying low. 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.
As I mentioned previously, 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 and expect to hold the bonds until maturity. Also, try to avoid investment vehicles that have no maturity constraints, such as bond mutual funds.
On the savings side, rates held pretty steady this month. This is a good thing. I don’t like seeing any kind of interest rate changing too quickly. Slow and steady typically translates into a solid economy.
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 2.30% (up from 2.17% last month) and the 5 year CD rate is at 2.76%(up from 2.62% last month).
Mortgage rates remained above 4%, with the 30 year rate at 4.40%, up just a bit from last month. 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 jumped up big time in June, hitting prices not seen since November 2014. Price per barrel ended June at $74.15, up from $67.04 a month ago.
A lot of this price rise is due to OPEC keeping their output low and also the sanctions on Iran. If prices stay this high for awhile, road warriors are going to be feeling it at the pump.
Nationally, gasoline prices are averaging about $2.86 per gallon. FYI, a year ago, we were paying $2.23. Spartanburg, SC has the cheapest gas in the country at $2.46.
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: There has been over 20 indictments and 5 guilty pleas so far. Trump continues to call it a witch hunt. On the other side, Mueller is very quiet. Something has got to give but probably not until after the summer. This will be a pretty good market mover, especially if they go after Trump.
- Negotiations with North Korea: This is coming off the board since nothing of substance came out of the meeting that was held in June. In fact, the CIA says that NK is still generating nuke fuel for bombs.
- Trade Wars: I said this was heating up last month. Now, it’s becoming a full blown dumpster fire. US companies are already talking about moving production overseas and/or laying off workers. Hopefully, we have smart people at the table trying to negotiate a mutually beneficial outcome for this trade war. Otherwise, it looks like we’re going to go back and forth with more tariffs until someone breaks. Regardless, this will have a negative impact on the markets, at least in the short term.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
