Fun Facts about December
- Birthstone: Turquoise or Zircon
- Flower: Narcissus or Holly
- Zodiac signs: Sagittarius and Capricorn
- In the original Roman calendar, December was the tenth month of the year. It got its name from the Latin word “decem” which means ten. However, it became the twelfth month when the Romans added in January and February to the start of the year.
- December’s equivalent in the Southern Hemisphere is June.
- Hanukkah 2021 began in the evening of Sunday, November 28 and ends in the evening of Monday, December 6.
- December 7 is National Pearl Harbor Remembrance Day.
- December 21 is the Winter Solstice—the astronomical first day of winter in the Northern Hemisphere and first day of summer in the Southern Hemisphere.
- December 25 is Christmas Day.
- December 26 is Boxing Day (Canada, UK).
Stocks would have made it two months in a row of positive gains if it wasn’t for a big dip on the last day of the month in November. For the month, the S&P 500 dropped a bit under 1%, 0.825% to be exact. For the year, the index is now up 21.6%.
With Q3 earnings out of the way, the biggest influencers on the market in December will be covid and the Fed. In fact, as I was writing this update, the Fed simply mentioned that they were going to discuss increasing their tapering pace at their next meeting. A nearly 2% drop in the major market indices ensued. This is another great example of how quickly and violently the markets react to the unexpected.
On other fronts, supply chains are starting to mend themselves, although it is probably too late to help the holiday shopping season. Covid is back on the front page again as the omicron variant is spreading rapidly across the globe. The good news is that initial reports show that symptoms are mild, even though it is highly contagious. The bad news is that many countries are locking down again to try and minimize the spread. This has been putting a damper on the markets over the last week or so and could be a problem going forward in the short term.
Seasonally, we are in that time of year where stocks have consistently performed well. The November through April timeframe has historically been the best time of the year to be invested in the stock market. So far, it’s not looking so good, but we still have a chance for a Santa Claus rally to finish up the end of the year.
Take a look at the Outlook section below to see what events could move the markets over the short term.
Bond prices were mixed in November. Higher quality corporate bonds and government bonds saw their prices rise while high yield, or junk, bond prices dropped. This is not unusual, especially when stock prices drop. Junk bond prices tend to follow stock prices more so than government bonds. As the Fed begins to taper its bond purchases, we should see blue chip and government bond prices start to drop along with high yield bonds. It looks like the plan is for the Fed to reduce their asset buying through mid-2022 before they start to raise short-term interest rates. If they accelerate that schedule at all, look for a stock market correction, which is overdue, in my opinion. This action by the Fed will cause bond prices to drop and their yields to rise. So, please be cognizant of this when buying bonds with a maturity date greater than 1-2 years. In this type of interest rate environment, you can expect to lose principal unless you hold the bonds to maturity.
The 10-year US Treasury note is now yielding about 1.5% and the 30-year bond is almost at 1.8%, both lower from last month. The path of least resistance for these rates is up, so expect these yields to rise and their respective bond prices to drop as the fed pumps the brakes on buying so many of these bonds every month.
Interest rates saw a slight rise in November. CD, money market, and savings account rates all went up by small percentages but are still incredibly low. Hey, we’ll take it when we can get it, right? These rates should continue to move higher through the end of the year, but the savings rates will most likely still be too low to keep up with inflation. They certainly won’t rise as much as debt service rates, such as credit card interest rates. The only thing stopping the rise is if the Fed stops talking about raising short term interest rates, which is possible given the new omicron variant of covid popping up recently.
Currently, the average savings account is paying 0.29%, just a touch higher than last month’s 0.28% average. Although safe from market fluctuations, putting all your eggs in a savings account is not the best bet, especially if you need to grow your account value. Plus, you have to pay taxes on that interest. I do expect these rates to continue to inch up over the next year.
The 1-year CD interest rate is now averaging 0.52%, up from 0.46% last month. The 5-year CD rate moved up as well, from 0.73% to 0.81%. You’re certainly not getting rich owning these. Hopefully, these rates will continue to head higher over the next few months as well.
Mortgage rates rose again slightly in November in anticipation of the Fed raising short term rates. Currently, the 30-year rate sits at 3.18%, up from 3.14% a month ago. This rise is not surprising considering most other interest rates are on the upswing as well. Still, historically speaking, mortgage rates are near all-time lows. This will continue to help the housing industry, which is on track to have one of their best years ever.
Oil prices took a well-deserved breather and dropped 20% in the month of November as renewed worries about covid scared owners of the commodity. Some of the drop might have been due to a coordinated effort across the globe to release strategic petroleum reserves this past month. In reality, the release was not that much, in relation to daily usage amounts. In the U.S., we released 50 million barrels of oil. This equates to just 2.5 days of normal usage.
The price for a barrel of oil went up by about 20% to settle near $67 at the end of the month. Year-to-date, the price is up 38%. I’m not sure how long this scare by the omicron variant will last, but if countries continue to lockdown further, we should see prices continue to drop.
The drop in oil prices hasn’t made it to the pump yet, as gasoline prices remain elevated. Regular unleaded gasoline is now averaging $3.39 per gallon, only down a penny from last month. We should see this price come down in December to reflect the added supply of oil. Oklahoma has the cheapest gas right now, at $2.96. California has the most expensive at $4.71 per gallon. FYI, a year ago, we were paying $2.13.
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: Is now officially known as The Infrastructure Investment and Jobs Act (IIJA) since Biden signed it this past month. This act includes a ton of funding for upgrading our country’s roads, bridges , and ports. It will replace lead pipes that provide drinking water. There will be big spending to improve our freight and passenger rail systems, our airports, our broadband internet infrastructure, and infrastructure for electric vehicles(charging stations). It took a while, but they got something done in DC. Overall, this is good for the country and will help form the next leg up for stocks.
- Coronavirus: It’s back on the front page again with the discovery of a new mutation, code name Omicron. Experts are hopeful that this isn’t as severe as the original or its delta variant. Only time will tell. Overall, the covid numbers in the U.S. are trending down nicely, now averaging just under 1,000 daily deaths (still 365,000 annual average!). The vaccination rate picked up a bit as young children started getting vaccinated. We are now at 70% of citizens with at least one dose. We’re getting there slowly but the numbers are looking good.
- Fed & Inflation: It appears that we are making some headway in getting the supply chain out of the weeds. CEOs are reporting that raw materials are becoming more available and that they are getting their finished products out the door to end users quicker. In October, we saw the highest inflation rate in 3 decades (6.2%). November and December numbers should be lower. This will definitely cause the Fed to rethink raising rates. Should be interesting to hear what they say at their next meeting coming up in a few weeks.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
