Fun Facts about February
- Birthstone: Amethyst
- Flower: Primrose
- Zodiac signs: Aquarius and Pisces
- February was added to the Roman calendar in 713 BC. The length of the month changed over time and, at one time, it had as few as 23 days. When Julius Caesar remade the Roman calendar, the month was assigned 28 days during normal years and 29 days during leap years which occur every four years. 2020 was our last leap year.
- In the Southern Hemisphere, February is a summer month the equivalent to August.
- The month is named for the Latin word, februum, which means purification.
- February is Black History month.
- Notable days in February include: Groundhoug, Valentine’s, President’s, Mardi Gras, and Ash Wednesday.
Stocks took a breather in January after a nice run to close out 2020. The S&P 500 index slid down by 1% to start off 2021.
Vaccine rollout is starting to smooth out with help from the new administration and the private sector. Also, the big drops in covid cases across the country is positive news for the stock market as well. Still, there are some negative forces that are putting a damper on stocks. One is the variant strains of the virus that are popping up across the globe that may be more resistant to the current vaccines. Another is the insane market action in the most heavily shorted stocks, such as Gamestop and AMC Entertainment, to name a few. Although this is perfectly legit trading, it certainly scares investors that stock prices can be manipulated so easily. When investors are scared, they sell. The good news (except for the holders of these stocks) is that this will be short lived.
Take a look at the Outlook section below to see what events could move the markets over the short term.
Bond prices dropped for a second straight month in January as rates rose on good news of more vaccine rollouts. 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 1.09% and the 30-year bond is at 1.86%, both higher from last month. Who’s buying these bonds with such low interest payments? Just not worth it for me.
Interest rates climbed a bit in January as hopes of an economic rebound gained footing with the increased deployment of covid vaccines throughout the country. 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 remained relatively flat over the last month despite a rise in government bond rates.
Currently, the average savings account is paying 0.28%, 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%, the same it was yielding a month ago. The 5-year CD rate is flat as well, now at 0.69% from 0.70%.
As of December 2020, the average savings rate across the U.S. is 13.7%, 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. Here is a great chart that shows the average U.S. savings rate all the way back to 1959. You’ll see that our current savings rate hasn’t been consistently this high since the mid 70’s.
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 2.86%, 9 basis points lower 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 ticked higher again for the third consecutive month as the global economy tries to get back on track. U.S. crude went up about 8% in January. One reason for the increase is the high probability of an output cut by OPEC in February.
Travel is continuing to pick up, especially by air, and as more vaccines get into people’s arms, the more confident people will be to travel, which should boost prices even more.
Gasoline prices moved higher in December, as expected. Prices at the pump are averaging about $2.42 per gallon, about 17 cents higher than a month ago. Mississippi has the cheapest fuel again, at $2.11. FYI, a year ago, we were paying $2.50.
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:
- More Stimulus: Even though the democrats control both houses of Congress and the White House, it will still be difficult to pass a bipartisan covid relief stimulus package. There is definitely consensus that more needs to be done but how much is the hurdle that they have to overcome to get something passed soon. If they can get something done, it could give the markets the boost that it needs.
- Coronavirus: We saw the spike in January that we expected after the holidays. But now, positive cases are dropping significantly and hopefully hospitalization and death rates will follow. I recently blogged about progress on the vaccine front. You can read about that here. As I said earlier, we’re getting good news on the vaccination rate but we’re also getting bad news on the mutated strains that are popping up all over the world. These positive and negative forces will continue to create market swings until we get a majority of our population vaccinated.
- Trade Wars/Tariffs: Although very important to our economy, it sounds like this topic is going to the back burner until we get a handle on the pandemic.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
