Stocks returned to their positive ways and finished up for the month of September. That’s pretty impressive, considering that there are quite a few negative forces weighing on the economy right now. By the way, September has been, historically, the worst month for stock market performance. Nonetheless, the S&P 500 finished September with a small increase of about 1.4%.
With Q3 earnings flooding the financial news airwaves throughout the next month, coupled with trade wars, tariffs and impeachment, there will be no shortage of events to influence the markets in October. I would expect some pretty good volatility for the stock market in general, but I think the US consumer is still strong and will be spending this holiday season, which always bodes well for the markets.
My biggest concern is if we can’t get a resolution on the trade war and tariffs. These are already causing prices to rise for just about everything for us. If it continues, I’m afraid that we will start to see companies tightening their belts, unemployment start to rise, and the economy stall out. The good news is that there is an election in about a year and the White House will try to get deals done so they have positive momentum going into the elections.
Bonds dipped in price slightly in September as economic news was a little bit better than expected. If Q3 earnings come in weak, I suspect that rates will continue to remain low for at least the rest of the year.
As low as our bond yields are right now, they are looking pretty good compared to many European countries and Japan. Those countries’ bonds have a negative yield and if you look globally, there are about $17 trillion in bonds with negative yields. That’s a lot of cabbage. The holders of these bonds could be in for some severe pain if interest rates reverse course and head higher.
Interest rates inched up in September after falling to near record lows in August. The economy still is showing no signs of inflation and the tariffs continue to impact commerce enough to hurt economic expansion across the globe. If the tariffs do stay in place much longer, we could see inflation as U.S. companies pass along this import tax to their customers. Hopefully, we’ll get a deal worked out with China and Europe so rates could normalize.
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 1.03%, down from 1.24%.
The 1 year CD interest rate is now averaging 2.16% and the 5 year CD rate is at 2.08%, both down from the previous month. Notice that the 5 year rate is still lower than the 1 year rate.
Mortgage rates continue to decline, with the 30 year still well below the 4% level. Currently, the 30 year rate is at 3.73%, up a smidge from 3.70% last month. Refi’s are still looking great, especially if you plan on being in your home for at least 5 more years.
Oil prices had a wild month in September. Following the attack on Saudi oil assets in the middle of the month, prices jumped almost 15%. Fortunately, they have come back down to almost pre-attack levels once they realized the attack wasn’t as damaging as feared. Price for a barrel of crude ended September close to where it was at the beginning of the month, $55.45. It was good to see that this attack didn’t affect prices for any significant length of time. This made sense, since there is a lot of excess oil in the market and there are more big producers to handle any shortfalls if one producer has problems.
Nationally, gasoline prices rose as a result of the attack on Saudi oil facilities. Prices at the pump are averaging about $2.65 per gallon, 7 cents higher than a month ago. Mississippi and Louisiana have the cheapest fuel for 3 months in a row, at $2.31. I also saw that California broke through the $4 mark, $4.03 to be exact. FYI, a year ago, we were paying $2.88.
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: The Fed cut rates again in September by 25 basis points. It looks like they are worried that the tariffs and trade war will slow our economy down too much to keep rates where they are currently. I see this as a positive for stocks because lower rates make bonds less attractive to investors, so they’ll tend to keep their money in stocks.
- Trade Wars: It looks like we’re set to meet with China in October to hopefully hash out a deal with them. Let’s keep our fingers crossed that we make some progress. If we can get any kind of deal put together, I believe the markets will get a nice boost to finish the year.
- Tariffs: With Q3 earnings coming out over the next month and a half or so, it will be interesting to see how detrimental the tariffs were to companies’ profitability. The tariffs go hand-in-hand with the trade war, so any deal would include a reduction or removal of tariffs, which would be good for U.S. companies and their stock prices.
- Impeachment: This is a wild card and could be in the headlines for a while. There has never been a president removed from office via this process and it looks like it will end up that way this time. I recently wrote about how this might affect the markets in my blog recently. Click here to check it out.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
