An Alternative To Money Market Funds

March 2019

February is behind us and what a month it was!! 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. By the end of February, the S&P 500 was up 11.08% year to date while the Nasdaq has gained 13.52% and the Dow Jones Industrial Average has added 11.10%.

In a unanimous ruling, AT&T won the court battle over its acquisition of Time Warner and the DoJ has stated it will not seek an appeal to the US Supreme Court. Bank of America is dropping the Merrill Lynch name from its trading and investment banking operations. Amazon abandoned plans to set up a second headquarters campus in New York City after a backlash emerged due to the tax incentives Amazon would have received by setting up operations there.

GE made headlines in late February when it announced an agreement to sell its biopharma unit to Danaher for $21.4 billion. This move is seen as funding the hole its health care insurance arm faced. GE shares are up over 37% through February 28 but many investors remain skeptical. For example, on February 28, over 700,000 GE Puts traded in the March 8 weekly options series. Widely followed analyst Stephen Tusa of JP Morgan remains bearish on GE and maintains his $6 price target.

Tesla stunned Wall Street announcing it was abandoning its showrooms and would now sell all of its vehicles online. This a complete reversal in strategy from what it stated just a few months ago. How will Tesla customers get to do test drives or get their vehicles serviced without a network of dealerships? On a positive note, Tesla was able to repay its $920 million convertible debt obligation on March 1 but this payment will put a dent in Tesla’s cash holding which totaled $3.7 billion at the end of 2018.

Stock buybacks remain a hot topic of conversation in Washington DC as the political climate heats up for the 2020 Presidential election. It seems some politicians conveniently forget that corporations are owned by their shareholders, who want management to maximise the return on their investment. Citigroup recently issued a report showing stock buybacks exceeded capital expenditures for corporate America for the first time since 2008. Over $800 billion was spent by S&P 500 companies on buybacks last year, which is a record setting sum.

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