Stocks showed no signs of letting up as they reached record highs by the end of April, making it 4 positive months in a row for the S&P 500. The index finished up about 3.5% for the month. Obviously, this has been a great start to the year, with the S&P 500 up an amazing 17.5% already for 2019. Even more surprising, stocks are making these all-time highs despite some pretty strong headwinds, like tariffs and trade wars.
Unfortunately, stocks don’t go straight up forever. The major market indexes already have returns in the first 4 months of 2019 that would be great for an entire year. So, I would not be surprised if stocks took a breather in the near future. Take a look at the Outlook section below to see what events are on the horizon that could cause this change.
Bonds had a pretty quiet April compared to the huge price rises that they had in March. Still, prices rose again, albeit slightly. The only exceptions were long-term government bonds, which saw their prices dip a little bit as their yields rose. This comes on the heels of more economic data showing that inflation and wage growth are tame, suggesting little reason for the Federal Reserve to raise rates.
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 seem to have bottomed out in April after a pretty steep drop since September of 2018. With the Fed on hold for raising rates and little inflation in sight, they could meander down here for awhile.
On the savings side, rates have stayed flat after dropping in March. This is reflected in the rates for savings accounts, money markets, and CDs.
Currently, the average savings account is paying 1.25%, up slightly from the previous month.
The 1 year CD interest rate is now averaging 2.67% and the 5 year CD rate is at 2.84%, both down slightly from where they ended in March.
Mortgage rates continue to decline, with the 30 year barely holding on to the 4% level. Currently, the 30 year rate is at 4.04%, down from 4.08% last month and down for the fourth month in a row. Not a bad time to look at refinancing if you have a current loan over 5.5%.
Oil prices have been on a staircase-type move upward this whole year so far. A barrel of US oil now costs over $63, up about 5% from a month ago.
The White House is starting to enforce sanctions in the Persian Gulf, particularly on Iran. Even though we are producing a ton of our own oil, these bottlenecks on foreign oil production are causing prices to rise pretty steadily. OPEC could easily make up for the shortfall in production, but they don’t mind seeing higher prices, especially as we move into the summer driving season.
Nationally, gasoline prices are moving up with the steady rise in oil prices. Prices at the pump are averaging about $2.89 per gallon, 20 cents higher than a month ago. I was paying under $2 per gallon at Costco just 2 months ago! Alabama has the cheapest fuel, at $2.51. FYI, a year ago, we were paying $2.81.
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: With regards to interest rates, it looks like they are going to sit tight for the rest of the year. This is a positive for markets because there is much less guessing as to what they are going to do next.
- Trump-related Investigations: Taking this one off the board. I can’t see anything coming out of these before the 2020 election that would impact investments or the economy significantly.
- Trade Wars: I thought we could get a boost for the markets with a deal with China but little progress was made in April. Any deal that gets done will be one less thing for the markets to worry about so it should be a positive catalyst.
- Tariffs: These continue to hurt our farmers and manufacturers the most. It seems like the effect of the tariffs have been factored into stock prices already. So, any resolutions will definitely provide a boost but if they continue for much longer, earnings reports will reflect the damage and could drive stock prices lower for these companies.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
