An Alternative To Money Market Funds
December is behind us and what an amazing month and year it was!! The major indices all rallied strongly as the Dow Jones Industrial Average “DJIA”, S&P 500 and Nasdaq all reached record levels and this trend continued into January. The DJIA increased by 7.3% in 2020 while the S&P 500 gained 16.3% and the Nasdaq rose an impressive 43.6%. Dividend payments for S&P 500 companies also set a record in 2020 rising 0.7% above 2019’s record year.
Last Friday’s Nonfarm Payroll Report showed the economy slowing as 140,000 jobs were lost last month. Wall Street had forecast a gain of 50,000 jobs so the miss was quite surprising. The U-3 unemployment rate held steady at 6.7%. The U-6 rate, which is a broader measure of the employment picture widely followed by economists, fell to 11.7%, down from 12.0% one month ago. Meanwhile, the closely watched labor participation rate remained at 61.5% last month. As a reminder, the next 2021 monthly employment report will arrive February 5.
The first Fed meeting of 2021 will take place January 26-27. As of January 8, the 10 Year US Treasury ended trading with a yield of 1.12%. A number of market strategists are concerned about the rise in interest rates as the US national debt is now over $27 trillion. Higher interest rates will negatively impact the US budget deficit and could hamper the strong homebuilding sector, a real bright spot for the US economy in 2020.
Tesla’s remarkable run has continued into the new year. The shares gained over 743% last year making Tesla 2020’s best performing stock in the S&P 500!! After the close of trading December 18, Tesla joined the S&P 500. Co-founder Elon Musk is now the world’s richest man ahead of Jeff Bezos, thanks to Tesla’s remarkable rally.
SPACs (Special Purpose Acquisition Companies) had an amazing run in 2020. 248 SPACs listed in 2020, raising over $83 billion, as per SPAC Research. SPAC IPOs are effectively the opposite of traditional IPOs. In a traditional IPO, an established company goes public to raise funds. A SPAC IPO is a shell company that previously raised capital before going public which then acquires either a stake or complete control of another company. The IPO takes place as a result of a reverse merger with this company. SPACs provide a faster means of going public as compared with the traditional IPO making them such an attractive way to go public.
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 are available here and columns here.
If you are unhappy with the returns now offered by money market funds, feel free to contact us.