An Alternative To Money Market Funds
July is behind us and what a month it was! US investors helped push the Dow Jones Industrial Average and the S&P 500 index to all time highs. These moves were in sharp contrast to the stock market’s reaction to the United Kingdom’s stunning vote to leave the European Union on June 23.
Nevertheless, the US economy continues to struggle, growing at only 1.2% in the 2nd quarter. This marks the third straight quarter the US economy grew at a rate below 2%. Thus, it is no surprise that the Federal Reserve left interest rates unchanged at the conclusion of its meeting last month. The next Fed meeting will be held September 20-21.
A number of technology firms reported outstanding results in July. Apple, Facebook, Amazon and Google all reported earnings well above analyst estimates. Amazon’s results were so strong, its increased share price enabled its CEO Jeff Bezos to become the second richest American, behind Bill Gates. Amazingly, the three largest companies based on market capitalization in the S&P 500 are now technology firms. Apple leads the list followed by Google and Microsoft. Amazon holds the fifth spot and Facebook holds the sixth spot.
Exxon sits in fourth place on the S&P 500 list but it reported disappointing results in late July due to the recent slide in crude oil prices. Oil has declined 20% from its high earlier this year. Chevron reported a quarterly loss of $1.5 billion due to a writedown of $2.8 billion in impairments. The results marked the third straight quarterly loss for Chevron. Despite the weak results for America’s two largest oil companies, Exxon and Chevron both declared on July 27 quarterly dividends unchanged from the previous quarter. Exxon’s 75c quarterly dividend will be paid September 9 while Chevron's $1.07 quarterly dividend will be paid September 12.
2016 has been a difficult year for a number of prominent hedge funds with several of these firms seeing double digit declines in their portfolios. They are badly lagging the performance of the S&P’s 500, which is up over 6% through July 31. Meanwhile, Harvard Management Corp., the group that oversees Harvard’s $37.6 billion endowment, is now on its sixth CEO since 2005 due to weak performance.
Throughout 2016 our guidance has been to focus on defensive type stocks such as Telecoms, Utilities and Energy. These 3 sectors lead the S&P 500 performance for 2016. We continue to recommend these sectors as many of the stocks here have a history of raising their dividends annually along with the potential for capital appreciation. And they provide dividend yields well above the yield on the 10 Year US Treasury, which was yielding less than 1.50% as July ended.
My weekly radio show on WWPR 1490 AM is now on Summer holiday. The show will return at 2pm on Friday, September 9. My prior radio shows and news columns are available on my firm’s website (www.amescapmgmt.com).
If you are unhappy with the returns now offered by money market funds feel free to contact us.