Stocks ended up pretty much where they started off back on September 1st. September is historically a bad month for stocks so I consider it a win for investors this time. The S&P 500 is still up about 9.0% for 2018, which is a nice return based on current interest rates.
As you probably already know, the stock market is forward looking and is considered a leading indicator for the economy. So, when nothing unexpected occurs, the market can give you a good idea of how well our economy is going to be over the next six months or so. I mention this because the elections coming up in November may trigger some unexpected events to occur that the market hasn’t already priced in, which means that you want to have your portfolio positioned correctly if there are any surprises.
Bonds made some pretty big moves this September. Government bonds, like the 10 year treasury note, decreased in price as good numbers kept rolling in for the economy. This move pushed the yield up over 3% once again and this time, it might be for a while. By the way, Germany and Japan still have bonds that pay a negative interest rate, meaning you pay them to borrow your money!
Corporate bonds, both high quality and junk, actually moved up in price. This can be partially attributed to the good economy which correlates to the less likelihood of companies defaulting on their bonds.
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 continue to rise but at a nice, steady pace. 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 0.20%.
The 1 year CD interest rate is now averaging 0.72% and the 5 year CD rate is at 1.29%.
Mortgage rates remain firmly above 4%, with the 30 year rate at 4.57%, up 0.10% 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. Recently, there have been signs of downward pricing pressure in the housing industry, particularly in California and the New York Metropolitan area. This should help keep mortgage rates from rising too quickly.
Oil prices reversed once again and headed higher, rising almost 5% in September. Price per barrel ended July at $73.20, up about $5 from a month ago.
Oil prices have risen 42% so far this year, which is a pretty big move even with the economy doing so well.
Nationally, gasoline prices are averaging about $2.89 per gallon. FYI, a year ago, we were paying $2.54. Baton Rouge, LA has the cheapest gas in the country at $2.52.
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:
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Russian Investigation: So far, 37 people have been charged in connection with this investigation; 8 have pleaded guilty and 6 have agreed to cooperate. There will probably be nothing major coming out of Mueller’s office until after the November elections, so as not to influence the elections.
- Trade Wars: There’s some good news as a result of the trade wars: domestic metal producers are doing better. However, this won’t be able to offset the layoffs and price increases that the tariffs are causing. I’m still hoping cooler heads will prevail and we can negotiate some nice trade deals, especially with China.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
