Calendar Notes
- November 11th, Tuesday, – Veterans Day
- November 27th, Thursday – Thanksgiving Day, Stock market is closed.
- November 28th, Friday – Stock market will close early at 1:00 p.m.
Stocks continued to power higher in October, despite tariffs, government shutdowns, higher inflation, and more layoffs. Another strong performance this past month made it SIX months in a row of positive returns for the S&P 500 index. Once again, much of the gains can be attributed to big tech and big financial stocks as they appear to be the most resilient to the current economic headwinds.
For the month of October, the S&P 500 rose a solid 2.42%, above its thirty-year average of +1.85%. For the year, the index is now up about 16.47%. That’s a great yearly return already and we still have a potential Santa Claus rally on its way!
Q3 earnings season has generally been positive and resilient, especially given the ongoing economic uncertainty. Companies in the S&P 500 index are clearly adapting to the tariff environment.
Historically, November is the best month for the S&P 500 index, averaging about +2.6% over the last thirty years. November is also the starting month for a period of historically strong performance, with the S&P 500 delivering an average return of approximately 7% from November to April since 1945, which is significantly higher than the average return in the other six months of the year.
The major market catalysts (that we know about) for November will be interest rates, SCOTUS ruling on the legality of certain tariffs, and jobs numbers if the government ever opens back up.
Take a look at the Outlook section below to see what events could move the markets over the short term.
Bond prices were flat to slightly down last month at the short end of the curve but rose slightly for bonds with maturities out past ten years. It’s a tough investing environment right now for fixed income investors because of the lack of economic data due to the government shutdown. Plus, the bond markets were rattled when the Fed cut rates but said another rate cut is not a given for this year.
Bond investors will be watching the Fed, as always, but also the Supreme Court to see if they deem the tariffs illegal. If they do, the Fed will almost certainly start cutting rates more aggressively since a big catalyst of the current rise in inflation will be removed.
The 10-year US Treasury note yield finished lower in October, settling at 4.08%, lower than the 4.16% yield that it was at the beginning of the month. The 30-year bond yield closed out the month at 4.66%, 8 basis points lower than a month ago.
There is still plenty of uncertainty in the bond market, so it is prudent to invest in bonds that mature sooner rather than later. I like bonds with a 9-to-18-month maturity and plan on holding onto them until they mature.
Savings rates are starting to roll over as the Fed cut rates for the second time this year. Money market rates and savings accounts are averaging only about 0.5% but the best rates can be found at credit unions and online banks. It is worth some of your time looking for the place with the best rates to park your cash.
| Account Type | Average Rate | Highest Rate |
| Money Market Account | 0.59% | 4.40% |
| High-Yield Savings Account | 0.56% | 5.00% |
| CD Term | Average Rate | Highest Rate | |
| 1-Year | 1.68% | 4.10% | |
| 3-Year | 1.33% | 4.25% | |
| 5-Year | 1.34% | 4.07% |
With money market and bank savings deposits still at record highs (about $7.42 trillion just in money market funds) and savings rates starting to head lower, we could start to see cash flowing from savings and CDs to corporate bonds with higher yields as well as dividend-paying stocks. This is a trend to look for over the next several months.
For now, CDs and MMAs are still a great place to put your cash and your emergency funds. Knowing this, it makes sense in most situations to put cash that you don’t immediately need into CDs with up to 2-year maturities. For emergency cash, stick to high yielding money market and savings accounts, of which the best are yielding about 5.0%. As always, keep the total under $250,000 per person at any one bank to ensure you are fully covered by the FDIC.
Mortgage rates continued to drift lower in October even as demand surged, primarily due to refinancing activity. Rates continue to hit new 12-month lows. Housing is still experiencing low inventory, particularly for existing homes. Builders are trying to fill the inventory gap, but prices are still too high for many first-time homeowners.
The 30-year fixed rate finished the month at 6.17%, about 17 bps lower than last month and the lowest it has been all year. It is now firmly below the narrow range of 6.5% and 7% that it has been in since October of last year.
Here is a look at the one-year chart of the 15- and 30-year mortgage rates from Freddie Mac.
Oil prices drifted lower in October as global supplies increased across the board, even as demand slowed. West Texas Intermediate, or WTI, price dropped close to $57 per barrel before settling above $60.
For the month, the price for a barrel of oil closed at $60.78, down about $1.66 from the beginning of October. For the year, it’s down about 15.25%. Looking ahead, I see prices hovering around the $60 area for the near future because there just aren’t any drivers that can move prices higher, other than a major war or suppliers simply turning the spigots off.
Here’s a look at the one-year chart for U.S. oil:
Gasoline prices dipped once again this past month, down 11 cents from the previous month, as they followed oil prices lower. We should continue to see prices moving lower, mostly due to increased oil supply, both in the states and globally. Texas jumped took the trophy for the cheapest gas this month, checking in at $2.58 a gallon. California still has the most expensive gasoline at $4.62 per gallon. FYI, a year ago, we were paying $3.13.
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:
- Fed & Inflation: For the second time this year, the Federal Open Market Committee (FOMC) cut interest rates, lowering the benchmark federal funds rate by 0.25 percentage points to a new target range of 3.75% to 4.00%. They made this cut without recent economic data to support their move since the government has been shut down for the entire month of October.
Where the Fed goes from here is still a bit murky. The economy is still proving resilient as consumer spending is quite strong even as companies pass on more of the tariff costs that they have been absorbing so far this year. The labor market is still weak, with plenty of layoffs being announced over the past few months. If these trends continue, I think another rate cut at the next FOMC meeting in December is a lock. Another 25-basis point rate cut is probably baked into the stock market cake already so don’t expect too much of a bump for stocks when they meet for the last time of the year.
- Trump Administration Policies: The tariff whipsaw continues with tariffs being implemented as well as exemptions for specific countries or materials. Recent data shows how the tariff costs are being distributed:
| Party Bearing the Economic Burden | Estimated Percentage of Tariff Cost | Description |
| U.S. Consumers | 35% – 55% | This is the portion passed on as higher retail prices on the final imported goods. |
| U.S. Importing Businesses | 20% – 30% | This is the portion absorbed by domestic importers (retailers, manufacturers, etc.) in the form of lower profit margins. |
| Foreign Exporters/Producers | 15% – 20% | This is the portion absorbed by foreign companies through lowering their pre-tariff export prices to remain competitive. |
For our biggest companies, they can survive the increased costs, supply chain disruptions, and rising financial strain due to tariffs, but small businesses are having a much tougher time keeping their heads above water. Also, consumers are still spending in the higher income brackets, but the lower income population has certainly tightened their belts.
Tariffs are facing a big legal test this week, as the Supreme Court reviews the legality of many of the tariffs put in place this year. If they are deemed illegal and tariffs refunded, it will be a big win for small businesses and may even provide a boost for the markets.
- Artificial Intelligence: The following illustration is a simple, but powerful roadmap of the AI revolution.
Regardless of the current headwinds for the economy and financial markets, AI is a transformative force that is influencing all sectors of the global economy and will be the major market mover for years to come, in my opinion. As an investor, this is the major theme that you want to consider when selecting investments over the next few decades.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
