Stocks managed to squeak out a small gain in July, despite being smack dab in the middle of the dog days of summer. The S&P 500 gained about 1.5% in July, adding on to an already very positive year.
With the Federal Reserve giving the markets what they wanted by cutting interest rates, for the first time since 2008 by the way, you would have thought stocks would see a nice rally. However, the rate cut was already priced in when the market rallied in June, so market reaction to the upside was muted, to say the least. There are a couple of possible catalysts that can keep this rally going. Check out the Outlook section below to see what may move the markets over the next month or so.
On a somewhat related note, did you know that the dog days of summer refer to the dog star, Sirius, and its position in the heavens during this time of the year? To the Greeks and Romans, the dog days occurred around the day when Sirius appeared to rise just before the sun, in late July and early August.
Bonds had a mixed month of small gains and losses in July. Short term bonds saw their yields drop while bonds that mature in 10 years or more had a little bump in their yields. This is good for bringing the yield curve out of inversion, although it is still slightly inverted. Overall, bond prices were pretty much flat for the month across the spectrum: government, corporate, and junk.
Across the pond, bizarro world is occurring in the bond market. For instance, Switzerland’s entire government bond market is paying negative interest rates, including their 50 year bond!! Overall, there is $13 trillion in negative yielding bonds globally. That’s amazing.
Interest rates continued their drop again in July and it’s not surprising why. The economy is showing no signs of inflation and the tariffs continue to impact commerce enough to hurt economic expansion across the globe.
On the savings side, short-term rates, like savings and money market accounts, as well as longer-term rates, like CDs, have continued to come down.
Currently, the average savings account is paying 1.28%, down slightly from 1.33%.
The 1 year CD interest rate is now averaging 2.41% and the 5 year CD rate is at 2.39%, both down from June.
Mortgage rates continue to decline, with the 30 year still below the 4% level. Currently, the 30 year rate is at 3.88%, unchanged from last month. Refi’s are still looking good, especially if you plan on being in your home for at least 5 more years.
Oil prices went on a little roller coaster ride in July but after all was said and done, they finished a few bucks lower, settling at $57.50 a barrel. Prices usually rise during this time of year as more people are travelling on vacation and hurricanes shutting down offshore rigs. This price range, in the fifties, is a good price point for both consumers and producers.
Nationally, gasoline prices have stayed about the same from last month. Prices at the pump are averaging about $2.72 per gallon, a penny higher than a month ago. Mississippi and Louisiana have the cheapest fuel, at $2.35. FYI, a year ago, we were paying $2.87.
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: They just cut the overnight bank lending rate 0.25%, the first cut since 2008. This should force investors to venture into higher risk, such as stocks and junk bonds, if they want to get a decent rate of return on their investments.
- Trade Wars: The good news is that there are negotiations still going on between the U.S. and China to try and put an end to this trade war. The bad news is that little progress has been made, as far as the public knows anyway. It looks like talks will resume in September in the U.S. At some point, a deal will be made and when it happens, it will be a nice boost for the markets.
- Tariffs: The tariffs are taking a big toll on our economy as companies paying the tariffs have to make the decision to either keep eating them or pass them on to consumers. Also, if the tariffs stay in place much longer, our farmers are not going to be able to get back China as a customer because they will be buying elsewhere.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
