Fun Facts about May
- Birthstone: Emerald
- Flower: Lily of the Valley
- Zodiac signs: Taurus and Gemini
- The month of May was named for the Greek goddess Maia. She was the goddess of fertility.
- It is the third and last month of the season of spring.
- May in the Northern Hemisphere is similar to November in the Southern Hemisphere.
- The Indianapolis 500 car race is held each year during this month.
- The Kentucky Derby, the world’s most famous horse race, is held on the first Saturday of May.
Stocks moved higher for the third month in a row. The S&P 500 rose over 5% in April and is now up nearly 12% for the year. Fears of inflation have caused the biggest ripples in the market’s upward moving wave, but those fears have been assuaged by the Federal Reserve sticking to their guns to keep easy money flowing to continue the economic recovery from the pandemic.
Earnings for the country’s biggest corporations were fantastic in the first quarter of 2021 compared to the same time period a year ago. That shouldn’t have been too surprising since the pandemic had shut everything down last year at that time.
Expectations for companies to continue to do well as we try and put the pandemic behind us are being set pretty high and are already being reflected in their stock prices. Sometimes this sets the markets up for a little let down so don’t be surprised if we have a pause in the market’s upward momentum in the short term.
Having said that, we have some nice positive forces acting on certain sectors of the economy that should minimize any pullbacks that we might have. For instance, the pent-up demand for travel and spending on vacations is going to go ballistic this year (restaurants, hotels, airlines, etc.). Also, the influx of funds from the government on infrastructure spending will be a boon for the markets as well (tech, materials, heavy machinery, etc.).
Take a look at the Outlook section below to see what events could move the markets over the short term.
Bond prices reversed course and headed higher as worries of inflation eased, stopping a 4-month trend of lower bond prices. I don’t think this move will last much longer as the economy continues to heat up with everything reopening. We should see bond prices return to heading lower gradually over the rest of the year. Because of this, longer maturity bonds are not going to be the best investment right now. I would still try and keep your bond maturities short, no more than 2 years, to lower your portfolio risk.
The 10-year US Treasury note is now yielding 1.63% and the 30-year bond is at 2.30%, both lower from last month. These rates have taken a pause in going up but it’s a good bet that they’ll resume their upward trajectory shortly. Still, the best option for investment income is high-quality stocks that pay dividends.
Interest rates took a breather from floating higher and most ended lower for the month of April. As I said above regarding bond prices, I don’t expect this trend to hold, and we should see rates rise over the course of the rest of the year.
On the savings side, most rates remained flat to slightly lower.
Currently, the average savings account is paying 0.27%, slightly lower than last month. This rate is still incredibly low and certainly not the best place to park all of your money.
The 1-year CD interest rate is now averaging 0.50%, the same as last month. The 5-year CD rate is the same as last month as well, currently at 0.69%.
Mortgage rates paused their inevitable move higher by slightly dipping in April. 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 3.11%, lower than it was last month (3.25%). Demand remains very strong for both new and existing homes. Material prices to build new homes are skyrocketing as demand increases with Covid in retreat. Existing homes for sale are being bought sight unseen and with multiple bids in many areas of the country. Mortgage rates are not the problem when we see home sales drop.
Oil prices jumped 7.5% in April after a short pause in March. The price for a barrel of oil in the U.S. closed April at $63.58. The combination of upbeat economic data and good earnings from the oil companies helped spur the move up.
Demand should continue to pick up as travel increases and the economy recovers from the pandemic shutdown. This will keep a floor under oil and gas prices until we get back to normal.
Gasoline prices moved higher once again in April. Prices at the pump are averaging about $2.90 per gallon, about 3 cents higher than a month ago. Mississippi has a wicked streak going with the cheapest fuel once again, at $2.57. California, which will never win the cheapest fuel award, has broached the $4 a gallon ($4.02) mark. FYI, a year ago, we were paying $1.77.
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:
- Infrastructure Bill: Negotiations are continuing, and everyone is hoping for a compromise before Congress goes on recess in August for a month. This is a big bill and it’s going to take a while to hammer out the details that everyone can agree on so it can be signed into law. The market is already pricing in some of bill’s proposals to make it to the president’s desk by late summer. It should be a net positive for the stock market.
- Coronavirus: News of the pandemic has fallen off the front page, which is good news because that means we are getting back to normal. Over 43% of the country has received at least one dose, up from 28% one month ago. But we are seeing a slowdown in the vaccination rate even though there are plenty of shots available in most of the country. There is still a small percentage that aren’t getting their second shot to complete their vaccination and there is a bigger percentage that are just against it for whatever reasons. Regardless, we are much closer to getting back to normal every day and people are ready to get out and enjoy life, which is always good for the economy and the markets.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
