Happy New Year! (and good riddance 2020)
Fun Facts about January
- Birthstone: Garnet
- Flower: Carnation
- Zodiac signs: Capricorn and Aquarius
- January was named after the Roman god Janus. Janus is also the Roman word for door. The god, Janus, had two faces which allowed him to look forwards into the coming year and backwards into the past year.
- On average, it is the coldest month of the year in the Northern Hemisphere.
- In the Southern Hemisphere January is a summer month the equivalent of July.
- Martin Luther King Jr. Day is always on the 3rd Monday in January (January 18th this year).
Stocks continued their post-election/vaccine/Santa Claus rally in December after a huge November bounce. The S&P 500 index 4% for the month of December and finished the year at a very impressive 16%, especially for 2020!
I think that we saw a healthy appetite for stocks again this past month because of a few things. First, we saw vaccines go into people’s arms, which signaled there will be an end to this pandemic. Second, the election was certified at the beginning of December, providing more certainty for the markets. Seasonal factors also came into play, such as buying sprees by consumers for the holidays. This usually helps stocks in December. In fact, historical data shows that the last month of the year is the third best month to invest in the stock market.
Take a look at the Outlook section below to see what events could move the markets over the short term.
Bond prices dropped mildly through December as rates rose on good news of the vaccine rollouts. Long-term treasury bonds took the biggest hit as the yield curve attempts to normalize itself. This means that rates on bonds with longer maturities are higher than rates on short-term bonds, which makes sense, hence the term, normal. If you are a bond buyer and this trend continues, try and keep your bond maturities short, no more than 2 years, to reign in some of the risk in your portfolio.
The 10-year US Treasury note is yielding 0.92% and the 30-year bond is at 1.65%, both higher from last month. For reference, the interest rate on the 10-year dropped 50% in 2020 and the 30 year dipped about 30% in the same time period. It was a great year to own bonds if you had the intestinal fortitude for it.
Interest rates reversed course from November and did a nice, slow rise throughout December. Even with this bump in rates, they are still extremely low, which is great for borrowers but just horrible for savers.
On the savings side, most rates changed very little over the last month despite a rise in government bond rates.
Currently, the average savings account is paying 0.31%, slightly lower than last month. Although it is safe, it’s not the place to put all of your retirement savings, that’s for sure.
The 1-year CD interest rate is now averaging 0.53%, nearly the same as the 0.52% it was yielding a month ago. The 5-year CD rate is flat as well, now at 0.70% from 0.71%.
As of October 2020, the average savings rate across the U.S. is 13.6%, which is about twice the normal rate but much lower than the high it reached back in April of 34%. The money saved by staying home due to the pandemic is keeping this savings rate elevated for the time being. We should see this drop over the next couple of readings since the rate will account for holiday spending and holiday travel expenses.
Mortgage rates continue to remain incredibly low, which is great news for home buyers, real estate investors and refinancers. Currently, the 30-year rate is at 2.95%, just slightly higher than a month ago. Demand remains very strong for homes as inventories continue to diminish. It is definitely a seller’s market in the housing sector as these low rates are enticing first time homebuyers as well as city workers moving out to the burbs in response to work-at-home options.
Oil prices rose again for the second month in a row but couldn’t quite replicate the huge jump that they had in November. Still, U.S. crude went up about 6% in December but is still down 22% for the year. That’s not bad after the price being below zero back in April.
Travel is starting to pick up, especially by air, and the hope that the vaccines will bring us to the light at the end of the pandemic tunnel has caused energy prices to rise out of the abyss.
Gasoline prices moved higher in December, as expected. Prices at the pump are averaging about $2.25 per gallon, about 12 cents higher than a month ago. Mississippi has the cheapest fuel, at $1.92. FYI, a year ago, we were paying $2.58.
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:
- GA Senate Elections: These are happening in the first week in January and they could be market movers. Like I said last month, If the republicans keep the Senate, I think the markets will like that balance of power. If the democrats take over the Senate, there is a better chance of things actually getting done in Congress, which may or may not be good for stocks over the next few months. Like the saying goes: What’s good for Main Street isn’t always good for Wall Street.
- Coronavirus: We are still seeing a rise in hospitalizations and death rates in many parts of the nation. This makes sense since we are seeing the results of a heavy travel period during Thanksgiving weekend. Experts predict we will see another spike in January as holiday travel was relatively heavy during the last two months of December. I use this site to track these types of Covid trends: https://bing.com/covid. The great news is that we now have 2 vaccines approved for use in the U.S. You can track where we are in the vaccine process here: https://www.nytimes.com/interactive/2020/science/coronavirus-vaccine-tracker.html.
- More Stimulus: Well, we did get a stimulus bill passed in December which was certainly helpful. However, Trump and the Democrats are asking for more payments to individuals and families. The Republicans are now in a bind. This changing sides stuff would be surprising if it wasn’t 2020. Regardless, if the millions of people that need it can get more money in their pockets for a little while longer than this would be a good thing, for them and for the markets.
- Trade Wars/Tariffs: With a new administration coming into the White House, there is a good chance that the tariffs imposed on our imports will be removed, thus lowering U.S. companies’ costs, which will help them stay in business. This would give the markets a nice bump and it could happen rather quickly since no congressional approval is needed.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
