Stocks continued their upward trend in October, picking up where they left off in September. The S&P 500 ended the month up about 1.5%, despite some very serious headwinds.
The stock market is truly climbing a wall of worry right now. Some of the issues that are worrying investors include: economic slowdown, tariffs, trade wars, and impeachment. The two things that I think are helping stocks move higher are very low interest rates and the impressive spending by the American consumer. History is also on the side of positive stock returns during this time of the year as we are in the best 6 months to invest (November through April) according to historical performance.
Take a look at the Outlook section below to see my take on what will move the markets over the next few months.
Bonds were pretty much flat through October as yields climbed up from crazy low to just ridiculously low. It’s a good bet that rates are going to stay in this range for the remainder of the year, especially since the Fed just lowered rates by 25 basis points a few days ago at their last meeting.
I took a peek at global bond yields and they are still way out of whack. Germany, France, Japan, Switzerland, and even Italy have negative bond yields. Even Switzerland’s 50-year bond has a negative yield. Yikes! This is a bubble that could burst big time if interest rates reverse course and head higher. Stay away from any bonds that mature more than 3 years out.
Interest rates inched up again in October as they try to climb out of the August abyss. 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 bottomed out and hopefully will start to move back up.
Currently, the average savings account is paying 1.15%, up from 1.03%.
The 1-year CD interest rate is now averaging 2.10% and the 5-year CD rate is at 2.05%, both slightly down from the previous month. Notice that the 5-year rate is still lower than the 1-year rate.
Mortgage rates flattened out, with the 30 year still well below the 4% level. Currently, the 30-year rate is at 3.77%, up a smidge from 3.73% 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 calmed down in October after the wild swings in September following the attack on Saudi oil fields. Price for a barrel stayed relatively flat, settling $54.15, down slightly from last month’s price of $55.45.
As producers, we like this price range because we can be profitable without making any major cuts to the costs of running the company. As consumers, it’s high but very tolerable since we have a glut of oil floating around that will keep a lid on prices.
Nationally, gasoline prices followed oil prices lower in October. Prices at the pump are averaging about $2.61 per gallon, 4 cents lower than a month ago. Louisiana has the cheapest fuel, at $2.23. By the way, California is still above the $4 mark, $4.06 to be exact. FYI, a year ago, we were paying $2.80.
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:
- Trade Wars: Okay, this is getting ridiculous. The meeting we were supposed to have with China is now canceled again. This on again, off again has become so frequent that when a meeting is announced, the markets barely move anymore. Trump just tweeted that another meeting is scheduled but who is going to believe it after all of the false starts already? All we can do is wait until a deal is signed, sealed, and delivered.
- Tariffs: Q3 earnings started to show the detrimental effects of the tariffs to our companies’ earnings, but it wasn’t as bad as I feared. I know small businesses are being hurt pretty bad, but our large corporations seem to be holding their own with these added costs. 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 really heating up now. The HOR just voted to approve a formal impeachment inquiry. I guess now there will be public testimony from witnesses and a lot of grandstanding from representatives on both sides of the aisle. After this, they will vote on articles of impeachment and then it will go to trial in the Senate. This will almost certainly spill over into 2020 and how it will affect the markets is still anyone’s guess.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
