Fun Facts about March
- Birthstone: aquamarine and bloodstone
- Flower: daffodil
- Zodiac signs: Pisces and Aries
- The name March comes from the Roman god of war, Mars. For many years, March, being the start of spring, was also the start of the New Year.
- March 1st is Mardi Gras, aka Fat Tuesday.
- March 2nd is Ash Wednesday which signifies the start of Lent for most Christian religions.
- March 13th is the start of Daylight-Saving Time, which begins at 2:00 A.M. that Sunday. If your area observes it, don’t forget to “spring forward” and set the clocks one hour ahead, or you may find yourself an hour late to everything!
- March 17th is St. Patrick’s Day. According to folklore, folks wear a shamrock on St. Patrick’s Day because the saint used its three leaves to explain the Trinity.
- March 20th brings about the Spring Equinox—also called the vernal equinox in the Northern Hemisphere—marking the beginning of spring. In the Southern Hemisphere, this date marks the Autumnal Equinox and the beginning of fall. On this day, the Sun stands directly over Earth’s equator.
Stocks went on a wild roller coaster ride towards the end of the month after drifting lower for most of February. The main catalyst for the volatility was the Russian invasion of Ukraine. There is a lot of uncertainty on how far this invasion will go and how it will affect the world economy as it continues to recover from the pandemic. This coupled with rising interest rates has put downward pressure on stock prices.
For the month of February, the S&P 500 lost about 2.8%, marking the second consecutive month in the red. For the year, it is down 8%. The conflict in Ukraine is giving some pause by the Fed to aggressively raise interest rates, which could provide some support for stock prices. Looking at it from a strictly economic standpoint, Russia is not a very big player in the world economy, other than being Europe’s fuel pump. So, I feel the market drop may be overdone, as is the case with most geopolitical events.
Earnings reports for 2021 were mostly stellar, confirming a strong U.S. economy. CEOs are reporting that supply chains are being repaired and could normalize by year end for many industries. This, along with higher employment and wage growth are positive signs that we are putting the pandemic behind us. Now, we just have to manage inflation so we don’t overheat and drive us into a recession.
Take a look at the Outlook section below to see what events could move the markets over the short term.
Bond prices continued to drop in February, although they did get a slight bump towards the end of the month as investors flocked to the relative safety of bonds when Russia began its invasion of Ukraine. I expect the overall downward trend in bond prices to continue through 2022 as the Fed raises short term rates and the economic recovery continues from the dwindling pandemic. If this interest rate environment holds true, bond buyers better be wary when purchasing any bonds with a maturity longer than 12-18 months. In this scenario, you can expect to lose principal unless you hold the bonds to maturity.
The 10-year US Treasury note is now yielding about 1.88% and the 30-year bond is at 2.22%, both higher than last month once again. The path of least resistance for these rates is up, so expect these yields to continue to rise and their respective bond prices to drop as the fed pumps the brakes on its bond buying program.
Interest rates continue to rise, up now for a fourth month in a row. CD, money market, and savings account rates all went up by small percentages once again but are still incredibly low. These rates should continue to move higher throughout 2022, but the savings rates will most likely still be too low to keep up with inflation. Now that we know what the Fed is going to do (raise rates), changes in these rates won’t come as too much of a surprise.
Currently, the average savings account is paying 0.30%, little changed from last month. Although safe from market fluctuations, putting all your eggs in a savings account right now is not the best bet, especially if you need to grow your account value. Plus, you have to pay taxes on that interest. I certainly expect these rates to continue to inch up over the next year.
The 1-year CD interest rate is now averaging 0.61%, up from 0.51% last month. The 5-year CD rate is up as well, currently at 0.95% from 0.85% last month. You’re certainly not getting rich owning these. Hopefully, these rates will continue to move higher in a meaningful way over the next year or so. That way, we can at least make some money on our emergency reserves.
Mortgage rates continued their march higher for a second month in a row as the Fed gets ready to raise interest rates to help combat inflation. Currently, the 30-year rate sits at 4.25%, up significantly from 3.74% a month ago. There is still high demand for mortgages as buyers try to lock in these low rates. However, mortgage applications are dropping because of the low inventory of houses for sale.
Oil prices rocketed higher in February to make it three months in a row of higher fuel prices. The main reason for the big price uptick this time is the Russian invasion of Ukraine.
The price for a barrel of oil went up over 9% to settle near $96 at the end of February. For the year, black gold is now up 28% and that upward trend may be tough to stop. Besides the invasion, we have a world that continues to reopen from the pandemic that will continue to boost demand for oil. The good news is that this also means that every oil driller that shut down during the pandemic is going to be restarting their drilling operations. This should help level off prices somewhat.
Gasoline prices are shooting up big time as well. Regular unleaded gasoline is now averaging $3.61 per gallon, up a big $0.24 from last month. Arkansas now has the cheapest gas, at $3.23 a gallon. California has the most expensive at $4.83 per gallon. We are all going to be doing a lot more traveling this year so expect to see prices stay elevated until we get our refiners running at full capacity. FYI, a year ago, we were paying $2.72.
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:
- Ukraine Invasion by Russia: This event caused some incredible swings in the stock and bond markets at the end of February. What Putin is doing is horrible and is being categorically condemned across the globe. Talks between the two countries held near the Belarus/Ukraine border did not prove fruitful so the fighting continues. Hopefully, cooler heads will prevail soon and put an end to this assault because Russia is basically killing its own people, both in Russia, mainly due to the sanctions, and in Ukraine. Obviously, a stop to this will remove an uncertainty that the market currently fears and would be viewed as a positive for stocks and slightly negative for government bonds. Regardless, this event will be a temporary problem for the markets, unless Putin goes full crazy and invades another country.
- Coronavirus: New cases have dropped off a cliff: 57,000 per day versus 500,000 last month, which is great news. That means daily deaths should soon follow that trend. Currently, we are averaging about 2,675 deaths per day (down from 3,300 per day last month) which to me, is still an incredibly high number. Notwithstanding, these numbers have prompted the CDC to remove mask recommendations for most of the country (Yay!). Also, we are at 76.3% of our citizens vaccinated with at least one dose, up from 75% a month ago. We are probably close to our peak vaccination percentage here in the states. Going forward, it looks like a semi-annual or annual shot will be needed to minimize future covid outbreaks, similar to how we deal with the flu. I think most of us are ready to say goodbye to the pandemic, so this is welcoming news all around.
- Fed & Inflation: The Ukraine invasion has factored into the Fed’s interest rate decisions, according to economists, analysts, and other Fed watchers. On one hand, the invasion is causing even higher prices, making inflation more of a concern to the Fed than before. This would make the Fed want to raise interest rates more aggressively. On the other hand, it has caused a drop in economic activity across the world. This would steer the Fed to being less aggressive on raising interest rates. Right now, the overall consensus is that the Fed will still be raising rates but not as fast of a clip as previously expected prior to the invasion. This is definitely the event that has the biggest influence on stock markets currently so monitoring these rate increases will be front and center for investors in 2022.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
