An Alternative To Money Market Funds
April is behind us and what a month it turned out to be! The investment community witnessed the amazing upward climb in the major stock indices despite the US Dollar’s continuing strength. Bond yields continue to remain low globally since the end of 2014. In fact, the yield on the 10 Year German Bund briefly dropped below 5 basis points last month.
US economic growth forecasts were slashed in late April after the weak Durable Goods report was released on April 24. Nondefense capital goods orders excluding aircraft fell by 0.5% while the prior month’s data was revised lower.
Weak business spending is leading more economists to revise their target date for a rate hike by the Federal Reserve. CNBC.com reported that a growing number of economists do not see a Fed rate hike until December at the earliest. Our position is that the Fed will not raise rates in 2015 due to the soft economy as well as the size of the US Treasury debt outstanding, now at over $18 trillion and counting.
As we have noted previously, if the overall interest expense on this $18 trillion debt were to increase by 1 percentage point (100 basis points) the US budget deficit would climb by $180 billion dollars, assuming all other expenditures remain unchanged. And despite record tax revenues last year, the 2014 US budget deficit was over $480 billion dollars.
I strongly recommend having a cautious outlook for the US stock market. Last month’s S&P 500 quarterly earnings reports demonstrated the negative impact of the strong US dollar on profits for US multinationals. Revenue growth remains difficult to come by. Valuations have become extended as well.
According to a report in Barron’s late last month, 71% of fund managers it polled believe stocks are fairly valued, while just 8% consider them undervalued. The article also pointed out that Wall Street analysts expect S&P 500 earnings to rise less than 1% this year. Stock buyback activity is enabling many companies to report improving earnings per share even though revenue growth remains difficult to achieve.
We have good news to report to our readers. Clients of Ames Capital Management have seen their accounts grow nearly 16% (15.75%) year to date. Our dividend capture strategy is working well.
Several S&P 500 companies have once again increased their quarterly dividends to reward their shareholders. I encourage you to contact my firm to discuss how we can assist you in obtaining better returns on your capital. Our conservative, income oriented approach may be just what you have been seeking.
I now host a weekly radio show on WWPR 1490 AM in the Tampa Bay region. The show airs from 2pm - 2.30pm EST every Friday. The show can also be heard live on the station’s website (1490wwpr.com). Taped broadcasts of each show are also available on my firm’s website (www.amescapmgmt.com). Enjoy!If you are unhappy with the returns offered by money market funds, feel free to contact us.