An Alternative To Money Market Funds
January is behind us and what a volatile month it was!! The Dow Jones Industrial Average rose 7.17% last month while the S&P 500 rose 7.87%. As we all know, December was a very difficult month for investors. The S&P 500 fell 9.2% in December on fears the Fed would be aggressive raising interest rates in 2019 along with signs of a slowing global economy.
Recent events have demonstrated these concerns were greatly exaggerated. The US Labor Department gave clear evidence the US economy remains strong. Nonfarm Payrolls jumped in December increasing by 312,000 and by another 304,000 in January. On January 30, Fed Chair Jerome Powell eased concerns of investors by pledging patience on future interest rate hikes.
Quarterly earnings reports have been strong with GE and IBM posting surprisingly good results. IBM’s results were boosted by its enormous stock buyback program. IBM shrank its share count by 27.6 million shares from Q4 2017 to Q4 2018. Meanwhile, Deutsche Bank was able to post its first annual profit in 4 years even though its 4th quarter had a larger loss than forecast. Its investment banking business continues to struggle. Reports continue to suggest the German government will push Commerzbank and Deutsche Bank to combine in what several analysts have described as an arranged marriage.
One company to keep an eye on as 2019 rolls on is General Motors. Some value investors find its valuation and dividend yield very attractive. GM is expected to earn $6 per share this year so it trades at just over 6x earnings. The shares yield nearly 4%. Normally these statistics would make GM a compelling buy but caution is needed here.
In November, GM announced plans for a major restructuring drawing the ire of the Trump administration. Several plants in the US and Canada are expected to be shuttered causing thousands of workers to lose their jobs. GM CEO Mary Barra emphasized the company is moving in a new direction focusing on SUVs, self driving vehicles and electric cars.
Cadillac, GM’s premium brand, lags other luxury brands in terms of automobile sales. In 2018, Cadillac sold 154,702 vehicles in the US. Industry leader Mercedes Benz sold 354,144 vehicles, more than double the sales of Cadillac. Focusing on electric vehicles is especially puzzling. GM announced in November it was ending production of the Chevy Volt due to disappointing sales. Electric vehicles represented about 1% of total vehicle sales for 2018. These sales figures were boosted by generous government subsidies which are now being phased out.
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If you are unhappy with the returns offered by money market funds, feel free to contact us.