Stocks rocked in November, extending their uptrend from the previous two months. The S&P 500 ended the month up about 3.6% and is looking to have one of its best years since 2013. It is up over 25% year-to-date.
The stock market has a couple of good things going for it: potentially a heavy spending holiday season and a possible resolution to the trade war with China. Low interest rates also help by putting a floor under stock prices.
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 again relatively flat through November. It looks like the Fed is going to sit tight on changing rates anytime soon, based on their last meeting notes.
I took a look at the yield curve and it is flat up to the 7 year note maturity and then rates start to climb. This is telling me that rates are trying to normalize: the longer that you lend out your money, the more interest that you should be paid.
Global bond yields are still in bizarro world. Germany, France, Japan, and Switzerland 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 reversed course and headed lower in November as more investors became skittish and looked for safe havens for their money. Looking at the big picture though, rates are still extremely low based on historical averages. They will most likely remain in this low range until we start to see signs of inflation, which, so far, are non existent.
On the savings side, short-term rates, like savings and money market accounts, as well as longer-term rates, like CDs, trended lower in the same direction as general interest rates in November.
Currently, the average savings account is paying 1.04%, down from 1.15%.
The 1-year CD interest rate is now averaging 1.98%, less than the 2.10% it was yielding a month ago and the 5-year CD rate is at 2.07%, up slightly from 2.05% last month. Notice that the 5-year rate has finally risen above the 1-year rate. That’s how it’s supposed to be.
Mortgage rates continue to stay flat, with the 30 year still well below the 4% level. Currently, the 30-year rate is at 3.73%, down a bit from 3.77% 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 couple of wild swings in November but ended up about $1.27 from where it started at the beginning of the month. Price for a barrel settled at $55.42.
Now that the U.S. is one of the world’s biggest oil producers, we like where prices currently are because our oil drillers and refiners can be profitable without making any major cuts to the costs of running their companies. As consumers, it’s a little high but very tolerable since we have a glut of oil floating around that will keep a lid on prices.
Nationally, gasoline prices went the opposite way of oil prices in November. Prices at the pump are averaging about $2.59 per gallon, 2 cents lower than a month ago. Louisiana has the cheapest fuel, at $2.22. California was able to get its prices back down below $4 per gallon. FYI, a year ago, we were paying $2.49.
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: Still on again, off again. But the worst part is that it looks like we’re just trying to make a deal that gets us back to where we were before the trade war. That’s not very good negotiating. My biggest worry is for our farmers because they can’t withstand another growing season like we just had, coupled with losing their biggest buyer. Fingers are crossed for a deal to be made soon, which should give stocks a boost.
- Tariffs: So far, importers/retailers have not passed on their tariff costs to us, the consumers. Earnings dipped because of them but still held up well. The big companies are absorbing the tariffs but small businesses are having a tough time hanging in there. 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: A lot of information damning to Trump came out in the public hearings in November. Now, it goes to the House Judiciary Committee where it looks like they will have arguments for and against whether to impeach the president and what articles of impeachment will be submitted. Then, it’s on to the Senate for the trial. As of now, it doesn’t look likely that there is enough votes in the Senate to remove Trump. This will almost certainly spill over into 2020 and I assume if the outcome is as expected, it would be positive for the markets.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
