Fun Facts about June
- Birthstone: Pearl, the Moonstone, and the Alexandrite
- Flower: Rose and the Honeysuckle
- Zodiac signs: Gemini and Cancer
- June 14 is Flag Day (U.S.). Be sure to raise the flag!
- June 19 is Juneteenth (also known as Freedom Day or Emancipation Day). On this day in 1865, Union General Gordon Granger read the Emancipation Proclamation aloud in Galveston, Texas, effectively liberating enslaved people in the state, which had thus far been beyond control of the Union Army.
- June 19 is also Father’s Day this year.
- June 21 is the summer solstice, which heralds the start of summer in the Northern Hemisphere. It’s the day with the most hours of daylight, so enjoy! In the Southern Hemisphere, winter begins at this time.
Stocks went on another wild ride in May. The good news is that they ended up almost where they started at the beginning of the month. We still have all of the same catalysts moving the markets and none of them in a good way: high inflation, supply chain disruptions, Russian/Ukraine conflict, and the Fed raising interest rates.
For the month of May, the S&P 500 was essentially flat, just up 0.02%. For the year, it is still down over 13%. That’s not bad, considering where we were in the middle of the month.
It seems like the markets had priced in some of the worst-case scenarios regarding inflation and interest rates earlier in May, based on the bounce that we saw at the end of the month.
Seasonally speaking, this is the time when the big investors take a break from trading for the summer (sell in May and go away). This can cause some more volatility in price movement due to the lower trading volumes. It feels like we are already there after watching the markets over the past few months.
Take a look at the Outlook section below to see what events could move the markets over the short term.
Bond prices finally reversed course and headed higher in May. I can’t imagine that they have bottomed out but at least we are in a pause of some kind. We are in a weird situation right now because bond and stock prices are moving in concert with each other. Normally, they aren’t as correlated as they are right now. It also looks like investors are betting that the Fed may not be as aggressive as they thought earlier in the year because inflation looks to be peaking for many consumer items. Not seeing that with gasoline, that’s for sure.
The 10-year US Treasury note is now yielding about 2.84% and the 30-year bond is at 3.05%, both about the same as last month. This could be the pause that we were expecting after such a sharp runup in rates this year.
Savings rates moved higher for the seventh consecutive month. It looks like banks finally got the memo because savings rates really made some nice, big moves up. There is quite a time lag from when consumer borrowing rates go up and when consumer savings rates rise. Hopefully, savings rates will continue to head up and narrow the gap between what banks charge us to borrow and what they pay us to hold our money.
Currently, the average savings account is paying 0.38%, up from 0.33% last month. We’re still not making much interest here, but it’s getting better, and we should see higher rates throughout the rest of this year.
The 1-year CD interest rate is now averaging 1.36%, a big jump from 0.85% last month. The 5-year CD rate crested above 2% and now sits at 2.04%, up from 1.41% last month. I would still rather buy some blue-chip stocks that pay 3% or 4% dividends, but at least now, CDs are getting a little more attractive for conservative investors.
Mortgage rates finally took a breather and had their first monthly drop this year after four straight months of rising rates. Currently, the 30-year rate sits at 5.28%, slightly down from 5.42% a month ago. Existing home sales continue to drop but new construction homes are starting to get finished quicker as the supply chains repair themselves. Windows, cabinets, and pools seem to be some of the toughest items to get installed. Home prices are still increasing but at a lower rate than the past six months. The higher mortgage rates are starting to price out a bunch of home buyers which is causing sellers to start dropping prices or at least not having multiple offers.
Oil prices continued to move higher in May, making it the sixth straight month of higher prices. The price for a barrel of oil settled up just below $115, $10 more than it was at the beginning of May. For the year, oil is now up almost 53% and this upward trend in prices looks like it will continue.
The action by Europe to place an embargo on Russian shipments of oil, excluding shipments via pipeline, has put added upward pressure on oil prices worldwide. It is also affecting prices here in the U.S. even though we stopped importing Russian oil back in early March. This could definitely put a damper on the summer driving season here in the states.
Gasoline prices shot back up in May after taking a little breather in April. Regular unleaded gasoline is now averaging $4.62 per gallon, up $0.48 from last month. Kansas now has the cheapest gas, at $4.13 a gallon. California has the most expensive at $6.17 per gallon. We’re heading into driving season so don’t expect prices to drop down too much. FYI, a year ago, we were paying $3.05.
Check out the prices at the pump in your area: AAA Gas Prices.
Outlook
Events on the horizon that could move the markets in the near term:
- Russia Invasion of Ukraine: Russia has become bogged down in their invasion of Ukraine. They are concentrating on smaller areas to control versus trying to capture the entire country. They are making some headway but at considerable costs. World sanctions are crippling the Russian economy and now Europe is stopping all shipping imports of oil (still receiving pipeline shipments). This has caused oil prices to rise sharply across the globe, which is the fuel that moves the world’s commerce. This will keep consumer prices going up in the near term. Also, about 8% of the world’s wheat is supplied by Ukraine and they are going to have a tough time trying to move it out of there while fighting a war. This is not good for the consumer, either. The good news is that the world can outlast Russia economically. Let’s just hope Ukraine can, not just economically but literally.
- Coronavirus: This is really a supply chain issue now and I’ll be naming it as such going forward. Cases are dropping in Shanghai and other areas of importance in China for our imports. This is allowing those areas to get back to work. Of course, there will be a lag from now until actual product starts moving, but markets have already factored that into stock prices. Consumer prices are going to be higher, but the demand is still there from the American consumer so far. The main reason for that is the huge buildup of cash during the pandemic. Now, people want to spend it and they are, according to airlines, hotels, and restaurants as well as durable goods manufacturers (appliances, furniture, etc.).
- Fed & Inflation: The Fed raised short-term interest rates 50 basis points, as expected. This pushed the prime rate to 4%, which is the basis for many consumer loans (mortgages, credit cards, autos). I think they are doing a good job so far trying to control inflation without pushing us into a recession. Most material prices (metals, lumber, etc.) are continuing to drop. However, oil, agricultural, and livestock prices are still quite elevated. So, we have a mixed reaction to higher rates with regards to raw materials. This will be a tricky road for the Fed to navigate. So far, the markets aren’t surprised by their moves yet. Let’s hope it stays that way.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
