Stocks continued their upward climb in March, making it 3 months in a row of positive returns for the S&P 500. The index finished up about 1.2% for the month. This has been a great first quarter to start the year, fully recovering from that monster drop in December. We’re going to need some good earnings numbers from Q1 to keep this party going. A trade deal or an infrastructure plan from Congress would be very helpful as well.
Bonds had an amazing month in March. Every type of bond was up big. I think the Fed’s clarity on where they stand and worries of a possible economic slow down around the globe contributed to rates dropping across the whole bond spectrum. In this environment, it is still a good idea to own individual bonds or better yet, bond ETFs, that mature in 1 or 2 years and to hold them to maturity. That way, you don’t have to worry as much about big price fluctuations while you own the bonds.
Interest rates have continued to drop since peaking in early fall of last year. In fact, the yield on the 10 year treasury note has dropped back down to levels not seen since December of 2017. Recession worries have come into play and I think a big reason why are the tariffs, both the ones that Trump imposed and the retaliatory tariffs by other countries. We need some resolution on this front to keep our economy chugging along.
On the savings side, rates have dropped in March in concert with bond yields. This is reflected in the rates for savings accounts, money markets, and CDs.
Currently, the average savings account is paying 1.21%, down from the previous month.
The 1 year CD interest rate is now averaging 2.69% and the 5 year CD rate is at 2.87%, both down from where they ended in February.
Mortgage rates continue to decline, with the 30 year barely holding on to the 4% level. Currently, the 30 year rate is at 4.08%, down from 4.33% last month and down for the third month in a row. Some sources are noting the drop is due to lack of housing inventory, especially on the west coast. There seems to be plenty of inventory in my small part of the world: Charleston, SC.
Oil prices continued to climb in March to end Q1 on a very positive note. A barrel of US oil cost over $60 by the end of the month. OPEC continues to clamp down on production, keeping prices elevated. The mess that is Venezuela now is not helping either.
Domestically, we are producing and exporting more oil than ever. On the export front, we have almost doubled our exports compared to this time last year.
Nationally, gasoline prices followed suit with the rise in oil prices by increasing across the board. Prices at the pump are averaging about $2.69 per gallon, 28 cents higher than a month ago. Utah has the cheapest fuel, at $2.41. FYI, a year ago, we were paying $2.66.
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:
- Federal Reserve: It seems like the Fed is in a good place now. They have made some moves over the past 3 to 4 months and are waiting to see if further rate increases, or even decreases, are needed. This is a positive for markets because there is much less guessing as to what they are going to do next.
- Trump-related Investigations: Finally! Mueller submitted his findings to the Attorney General and there are no other indictments. So, it sounds like we can finally put this one to bed. Although there are other investigations still ongoing, the Mueller probe was the most influential to the markets, in my opinion. With this out of the way, there should be less uncertainty for stocks, which is always a good thing.
- Trade Wars: Negotiations continue with China to try and get a deal that suits both parties. There appeared to be some progress made towards the end of March, but as we’ve seen before, things could stall out quickly. Any deal that gets done will be one less thing for the markets to worry about so it should be a positive boost.
- Tariffs: These are starting to take a toll on certain sectors of our economy, particularly farming and manufacturing. I believe that tariffs create adversarial relationships and result in a no win situation for all parties. We have to find a better way to fix our trade imbalances.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
