Financial markets have gotten interesting, to say the least. Covid-19 is spreading like Kudzu across the globe, wreaking havoc in some countries and creeping into U.S. communities, including some around Cobb.
The selling fervor stepped up the pace on Monday, March 9th, after OPEC failed to win Russia’s buy-in on a plan to cut oil production. OPEC proposed lower production to keep oil prices stable. Demand for oil is falling and is projected to decline further should Covid-19’s expected negative economic effects become a reality. Following Russia’s refusal to play along, Saudi Arabia decided its production pace would continue unchanged or grow, which is sure to oversupply markets. Russia’s motivation is believed to be aimed at keeping oil production in the U.S. from growing. Breaking news! Russia is still not our friend, but why would they be friendly when they are burdened by our sanctions?
In reaction to increased oil production, global prices for oil fell approximately 20% on Monday, and financial markets tumbled lower on fears of the economic impact from slowing capital spending by the major oil companies. Logic says lower energy prices not only make for lower capital expenditures, but also benefit consumers by lowering the cost of transportation. Additionally, interest rates fell as stock investors bought bonds, and stocks finished approximately 7% lower on the day. We also saw the 10-year Treasury yield drop below 1%.
Amidst all this, the one thing a consumer can control is their spending. With Interest rates at unprecedented lows, you should look to refinance your home. Anytime I can lock in my fixed expenditures at a low rate, that’s a great thing. You can find 30-year fixed money at about 3%. Take advantage of it! I recommend a 30-year mortgage over a 15-year. I know the rate is lower on a 15-year mortgage, but the payment is higher. I prefer to lock in the lower payment. I can always take a 30-year mortgage and convert it to a 15-year by making extra payments. This gives me the most flexibility with my money.
I have noted for several months that stock prices got expensive after the run in 2019. When the S&P 500 gained 31.4% — during which the average company experienced less than 1% earnings growth — investors didn’t get much value for their buck. Stocks are certainly cheaper today than they were, so this is a great time to look at stocks that pay high dividends. We are seeing quality companies now with dividends yielding between 4% and 6%. That dividend is a nice way to get paid while you are waiting for the company to grow.
Volatility is likely to remain until we gain clarity on the domestic outbreak of Covid-19, but the big lesson here is that stock market volatility is real. For that reason, we recommend keeping assets needed within the next 10 years invested in fixed-income securities, which have much more stable prices than stocks. If you have a longer investment horizon, stocks are still the best asset to invest and grow your wealth. The best action for investors right now is to make sure their portfolio is in line with their long-term strategy. If you don’t have a long-term strategy, we should talk.