Fun Facts about August
- Birthstone: Sapphire
- Flower: Aster
- Zodiac signs: Virgo and Libra
- September’s name comes from the Latin word septem, meaning “seven.” This month had originally been the seventh month of the early Roman calendar.
- September is the first of the autumn months in the Northern Hemisphere. Its Southern Hemisphere equivalent is March.
- September 5th —the first Monday in September—is Labor Day.
- September 22nd marks the start of fall. This year’s Autumnal Equinox occurs at 9:03 P.M. EDT on Thursday, September 22. At this time, there are approximately equal hours of daylight and darkness as the sun crosses the equator.
Stocks couldn’t continue the one-month streak they started in July. Stocks came out of the gates quick in August, picking up where they left off in July but by mid-month, fears of both a recession and rising interest rates had spooked investors enough that the markets turned south, ending August in the red. For the month of August, the S&P 500 dropped 4%. For the year, it is down almost 17%.
Consumer prices are down across the board, which shows the Federal Reserve’s efforts are working. Hopefully, they won’t have to raise rates much more so we can have a soft landing and avoid a recession. The uncertainty of what the Fed will do is the biggest influencer on the markets right now.
Regarding jobs and wages, we’re back to the good news is bad news for the markets. Currently, unemployment is at record lows and wages are increasing. While this is good news, it means that the Fed will continue to bump up interest rates, which is bad news for stock prices.
We still have a month until Q3 earnings start to come out so the big mover of stock prices in the near-term will be the Fed meeting on September 21st.
Take a look at the Outlook section below to see what events could move the markets over the short term.
Bond prices pulled another U-turn and headed south in August. I think they might have finally figured out which way to go after the Federal reserve conference about a week ago.
The 10-year US Treasury note jumped above the 3% level, ending in August at 3.14%. The 30-year bond is at 3.25%, ending the month higher as well.
Buyers of individual bonds, especially high-yield, or junk bonds, have to do their research when selecting their purchases. Companies issuing bonds paying higher interest rates could be subject to default more easily if they are not managed well and are having a hard time making money in this economic environment. I would try to stick to bonds issued from high quality companies with strong cash flow and balance sheets, even though you will be getting a smaller interest payment.
Savings rates have been on a nice, steady climb for 10 consecutive months now, which is great news for savers and risk-averse investors. Although these rates can’t compete with inflation (yet), at least they are in the stadium somewhere! Plus, with the Fed almost guaranteeing that they are going to raise rates again in September, savers should expect an 11 straight month of higher interest rates for their savings and money market accounts.
Currently, the average savings account is paying 0.86%, up from 0.62% last month. At this rate, we could see a 1.00% rate by next month.
The 1-year CD interest rate is now averaging 2.34%, up from 1.94% last month. The 5-year CD rate is currently at 2.70%, up from 2.52% last month. They are getting to a pretty decent rate for risk-free returns, at least the one-year CD anyway.
Mortgage rates reversed course in August and rose to near their highest levels this year. Currently, the 30-year rate sits at 5.93%, up from 5.57% a month ago. Houses are staying on the market longer and sellers are lowering their offering price in most major markets. Also, refinancing mortgages has fallen off a cliff, not surprisingly. Everyone refinanced when rates were in the 2% – 4% range. Having said that, rates have crept back up close to their highs earlier in the year, but I can’t see them getting much higher just based on supply and demand in the housing market.
Oil prices continued to drop in August once again as businesses and consumers continued to adjust their spending and travel habits to combat inflation. Also, Russia is flooding the market with oil as it tries to pay for the ongoing war with Ukraine. The low hurricane activity this year is also helping keep prices lower. The price for a barrel of oil settled just above $89 for August, $9 less than it was at the beginning of the month. For the year, oil is still up almost 19%.
The drop in oil prices should continue as demand slows down from the effects of inflation. Any hurricane activity over the next couple of months or more shenanigans from Russia could negate the demand slowdown so expect prices to continue to be volatile.
Gasoline prices dropped significantly once again in August (again, thank you!). Regular unleaded gasoline is now averaging $3.83 per gallon, down $0.43 from last month. Arkansas now has the cheapest gas, at $3.33 a gallon. Hawaii has overtaken California with the most expensive gas at $5.30 per gallon. FYI, a year ago, we were paying $3.17.
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: It seems like a stalemate over there, except for the fact that Russia continues to bomb nuclear reactor plants in Ukraine. Amidst the war, both countries are exporting their wheat crop, which is welcoming news since they are two of the largest exporters of wheat in the world. Besides the great toll on human life and the destruction of Ukraine, this war is creating an inflation crisis in Europe, particularly with energy prices. As we head into cooler weather, it could be trouble for many countries in Europe to keep warm.
- Supply Chain Status: Shipping costs continue to retreat and port operations here in the states have begun to normalize. We still have a shortage of truck drivers and that’s a tough fix, in my opinion, because it is such a demanding job in terms of time away from home and the long hours behind the wheel. We will see how well the chain has repaired itself in the next few months as we head into the busy season for shipping: prepping for holiday shopping.
- Fed & Inflation: The Fed held their annual conference in Jackson Hole, Wyoming last week. It is not considered an official Federal Reserve meeting where they decide on interest rate policy, but it still caused shockwaves in the stock and bond markets. Fed Chairman Powell was pretty forceful in his speech that they plan on continuing to tighten money supply, aka raise interest rates, to stave off inflation. It looks like the inflation that they are most concerned about is wage growth. Other prices, such as metals, food, energy, housing, autos, etc., have all dropped significantly since the beginning of the year. However, wages continue to go up and workers are continuing to quit jobs with no fear of not getting another one almost immediately and for higher pay. Of course, this is good for us but then we will keep buying stuff and then prices for everything will stay high. The Fed is tasked with trying to find the right balance. So far, I think they are doing a pretty good job. The final verdict won’t be in until later next year I would guess. Investors sticking with well-run companies with strong balance sheets will do well in this environment.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
