An Alternative To Money Market Funds
March is behind us marking the end of this year’s 1st quarter and what a rough quarter it was!! The Dow Jones Industrial Average, S&P 500 and the Nasdaq all finished the quarter in negative territory. Meanwhile, the 10 Year US Treasury ended the quarter with a yield of 2.34% while both Brent and WTI crude oil each finished above the $100 per barrel level. In fact, the energy sector was the only sector of the S&P 500 to post a positive return in the 1st quarter.
Last Friday’s Nonfarm Payroll Report (NFP) was surprisingly strong with 431,000 jobs added.
In addition, the January and February figures were revised upwards and a combined 95,000 jobs were added. The U-3 unemployment rate dipped to 3.6% in March as compared with a 3.8% rate in February. Meanwhile the closely followed U-6 rate edged lower to 6.9%, down from 7.2% in February. Also positive in the report was the Labor Participation Rate. It rose to 62.4%. While encouraging, this figure is still 1 full percentage point below the pre-pandemic high back in February 2020. The next Nonfarm Payroll Report will be released on Friday, May 6.
The Federal Reserve voted to increase the Federal Funds rate by 25 basis points at its 2 day meeting March 15-16. In addition, Fed Chairman Jerome Powell said the Fed would soon wind down its asset purchases. In a subsequent interview, Powell acknowledged the inflation picture continues to be a problem. As a result, additional rate hikes will likely be needed.
Wall Street veteran Louis Navellier recently pointed out that the Fed will be limited in how much it can raise rates. He feels the dramatically lower yields now offered by the other major central banks around the world sets a ceiling on our Fed’s ability to raise rates. In addition, these rate increases would cause the dollar to strengthen even more against the other major currencies. As a result, US exports would become even more expensive while reducing corporate profits.
STOCKS TO WATCH
The homebuilding sector has had a rough start since 2022 began. Fears of rising interest rates and commodity prices have lessened investors' appetite for the sector. Barron’s had a story on this sector in its April 4, 2022 edition. As this article noted, value investors may find the group attractive due to their extremely low forward Price Earnings (PE) ratio. Several in the sector are trading with a forward PE below 5. For example, Pulte Group (PHM) is trading with a forward PE of 4.1, KB Homes (KBH) is trading with a forward PE of 3.1 and Toll Brothers is trading with a forward PE of 4.5!! PHM shares have declined nearly 26% year to date, while KBH is off nearly 27% and TOL is off nearly 30% year to date. All of the above figures are as of the close of trading on April 1.
My weekly radio show is now on holiday and should return soon on WWPR 1490 AM. 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.