ARTICLES

An Alternative To Money Market Funds


April 2020

March is behind us and what a painful month it was. The spread of the deadly coronavirus has hammered the global equity markets while bond yields have plunged to record lows. For example, the yield on the 10 Year US Treasury fell to 0.38% while the yield on the 30 Year US Treasury fell to 0.69%. These record low yields occurred on March 9. Meanwhile, the S&P 500 fell over 35% from its record high in February while the Dow Jones Industrial Average fell over 38%.

Last Friday, the March Nonfarm Payroll Report was released. The Labor Department stated that the US lost 701,000 jobs. While this was the official figure, we know that millions of Americans have lost their jobs or been furloughed. The unemployment rate jumped to 4.4% up from a record low of 3.5% in February. The US has entered a recession. It will likely remain so until progress has been made in the battle to end the coronavirus.

Congress, President Trump and the Federal Reserve have moved aggressively to keep the economy open. The Fed cut rates to zero at an emergency meeting in March. Airlines will get much needed assistance to continue flying. Boeing received aid from Congress enabling the company to remain open. Many other industries will be receiving assistance as well.

The oil market rallied last week on hopes the US, Saudi Arabia and Russia will agree on cutting production. The details are being negotiated but Brent crude moved back above $30/barrel while WTI crude has rallied to above $28/barrel. Due to the economic slump around the world, demand for oil and gas has plummeted. Again, the impact of the coronavirus has in many ways ground the global economy to a halt.

Several large retailers have closed stores and furloughed workers due to the economic slowdown. Both Macy’s and Nordstrom have suspended their dividends while Kohl’s is expected to do the same shortly. Macy’s was removed from the S&P 500 on April 6 and was replaced by Carrier. Macy’s is being added to the S&P 600 SmallCap Index.

GE finally completed the sale of its biopharma unit to Danaher on March 31, more than 13 months after it was initially announced. Sprint and T-Mobile finally completed their merger on April 1. HP will remain independent as Xerox ended its hostile bid for the company. Meanwhile, Softbank has pulled its offer for the purchase of $3 billion of WeWork shares as certain conditions to the tender offer were not satisfied.

My weekly radio show airs each Friday at 12.30PM EST on WWPR 1490 AM. The show can also be heard live on the station’s website (www.1490wwpr.com). My prior radio shows and columns are available here.

If you are unhappy with the returns now offered by money market funds feel free to contact us.

 

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