Fun Facts about April
- Birthstone: Diamond
- Flower: Daisy and the sweet pea
- Zodiac signs: Aries and Taurus
- April 1 is All Fools’ Day—otherwise known as “April Fools’ Day.”
- In the Southern Hemisphere, April is the same as October in the Northern Hemisphere.
- The Boston Marathon is held during April.
- In Ancient Rome the month of April was sacred to the goddess Venus.
- The stock market is closed on Good Friday, April 15th, which is also the start of Passover.
- April 15th is also Emancipation Day and so the deadline for filing your federal taxes this year is April 18th.
- Easter Sunday is on April 17th.
Stocks continued their February freefall in the beginning of March but good news out of Ukraine and the Federal Reserve kickstarted a reversal that saw the S&P 500 rise 9 out of the last 13 trading days of the month. Investors are still very concerned about runaway inflation and any surprises from Putin. Additionally, rising interest rates will force investors to decide whether stocks are still worth the risk or if it is better to buy bonds now that yields have risen significantly.
For the month of March, the S&P 500 gained about 3.5%, making it the first positive month for stocks in 2022. For the year, it is still down almost 5%. Stocks during the month of March have swung in unison with the fortunes of Ukraine. When word comes that they have held their ground against Russia or peace talks are in progress, stocks have been gaining ground. Conversely, when Russia advances further into Ukraine or peace talks break down, stocks take a dive. This was more prevalent at the beginning of March but the conflict’s influence on the markets has waned a little bit since then.
As the final earnings reports came in for 2021, the macro numbers showed that annual corporate profits were the highest since 1950. This is good news but now companies have a high bar to meet when they start reporting earnings for 2022. Investors will have to do their homework to find those companies that can continue the success of last year.
Take a look at the Outlook section below to see what events could move the markets over the short term.
Bond prices headed lower this past month as the Fed cemented its strategy of raising short term rates to help control inflation. Investors are still wary of possible surprises in Ukraine if Russia does something unexpected, but the more probable outcomes have been digested and priced into the bond market already. The main mover of bond prices for the foreseeable future are the actions of the Federal Reserve and that’s what investors are reacting to, particularly this past month. As stated in the past few updates, 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 2.36% and the 30-year bond is at 2.48%, both much higher than last month once again. In fact, the 10-year hasn’t yielded this much since May 2019. The path of least resistance for these rates is still 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 and raises short-term rates.
Savings rates crept up a little higher in March, continuing their streak of rising rates for a fifth consecutive month. CD, money market, and savings account rates all went up by small percentages once again but are still incredibly low. They certainly aren’t keeping up with the rate increases on credit card debt or loans. However, these rates should continue to move higher throughout 2022, but they 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 0.74%, up from 0.61% last month. The 5-year CD rate finally broke the 1% ceiling and is now at 1.09%, up from 0.95% 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 moved higher for the third month in a row as the Fed confirmed their commitment to raising interest rates this past month. Currently, the 30-year rate sits at 4.53%, up from 4.25% a month ago. Mortgage applications declined in March to the lowest level since December 2019. What a huge turnaround from just a few months ago. Housing inventories are starting to climb a little, which is good for homebuyers.
Oil prices continued to climb higher in March, making it the fourth straight month of rising prices. Besides the Ukraine invasion wreaking havoc, we also have the normal shenanigans going on in the Middle East. Plus, we are inching closer to the summer driving season which will put even more upward pressure on fuel prices.
The price for a barrel of oil settled up just above $100, $4 more than it was at the beginning of March. For the year, oil is now up 30% and that upward trend will probably continue. Fortunately, the best cure for high oil prices is high oil prices. The world will be producing more, demand will come down and that will at least bring a halt to the rapid rise in prices. Also, Biden plans on releasing about a million barrels of oil a day from the Strategic Petroleum Reserve over the next six months to try and cool down the fossil fuels market. This will help a little perception-wise but will do little to keep prices down for long.
Gasoline prices are riding oil’s coattails, as expected. Regular unleaded gasoline is now averaging $4.23 per gallon, up a huge $0.63 from last month. Missouri now has the cheapest gas, at $3.77 a gallon. California has the most expensive at $5.90 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. Although, prices this high may deter people from getting behind the wheel for a long trip. FYI, a year ago, we were paying $2.87.
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:
- Russia Invasion of Ukraine: It appears that Russia’s advance into Ukraine has bogged down. This last month has exposed the poor leadership and readiness of Russia’s military. The longer this sort of stalemate lasts, the better chances of Russia agreeing to a truce. Of course, Putin could go even more off the rails and start using nukes or some other weapons of mass destruction which could force NATO’s hand and get everyone involved in this mess. Right now, though, investors are cautiously optimistic that peace will prevail, and the markets will reflect that if it holds true.
- Coronavirus: It’s been 2 years since the pandemic really broke out across the U.S. We were all locked down back then and had no idea how disruptive and deadly it would be for humanity. With so many casualties and deaths, it is amazing to me how quickly we were able to recover. We are nearly back to normal with most aspects of our daily lives. Having said that, new cases continue to plummet across the country: 21,000 per day versus 57,000 last month, which is just great. As expected, daily deaths have been dropping as well. Currently, we are averaging about 512 deaths per day (down from 2,675 per day last month). At this rate, Covid-19 should have little impact on the markets going forward.
- Fed & Inflation: Earlier this past month, the Fed raised short term rates 25 basis points. Based on their meeting notes, they plan to stay on this path of bumping rates up over the next few years in order to keep inflation under control. Some fear that they are behind the curve already. Unfortunately, nobody knows for certain until the rate increases filter through the economy, which usually take at least six months. I think if the supply chain interruptions can be corrected soon, prices will drop and then they can continue on this path of small, periodic raises. This is a positive for the markets because it is expected. If they deviate from this strategy, especially if they are more aggressive, it could spook the markets and we could see a pullback.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
