An Alternative To Money Market Funds
April is behind us and what a difficult month it was!! Just in the month of April, the Nasdaq declined by 13.3%, its worst performance since October of 2008. The Dow Jones Industrial Average declined by 4.9% while the S&P 500 declined by 8.8% during the month of April. War in Ukraine, Covid, a global semiconductor shortage and supply chain disruptions all played a part in the decline of the major stock market averages.
Last Friday’s Nonfarm Payroll Report (NFP) was strong as 428,000 jobs were added. The U-3 unemployment rate held firm at 3.6% while the U-6 rate actually increased a tick to 7.0%. The revisions for the February and March figures dropped by a combined 39,000 vs. prior reports. The Labor Participation Rate dropped slightly to 62.2% from 62.4% in March while Average Hourly Earnings rose 0.3%. The next NFP report will be released June 3.
The Federal Reserve voted to increase the Federal Funds rate by 50 basis points at its 2 day meeting May 3-4. This was the first half point hike since 2000. In addition, Fed Chairman Jerome Powell said the Fed would begin winding down its nearly $9 trillion balance sheet in June. The impact of inflation is clearly being felt in the economy as the US economy contracted by 1.4% in the 1st Quarter of this year. The high inflation, which hit an annualized rate of 8.5% in March, coupled with rising interest rates, could push the US into recession during the 2nd Quarter of the year. Note the Fed’s next meeting will take place June 14-15.
STOCKS TO WATCH
Amazon (AMZN) and Starbucks (SBUX) workers are seeking to become unionized in growing numbers. According to a May 3 Reuters story, over 100 Amazon facilities have reached out to the Amazon Labor Union to discuss organizing after a facility in Staten Island voted to organize. This was the first time in Amazon’s history that a group of workers voted to join a union. SBUX is facing a rapidly growing union movement too. Since August of 2021, nearly 250 SBUX stores have seen their employees vote to unionize.
In order to prevent more workers from joining the union movement, both SBUX and AMZN will have to offer their workers more generous pay increases and benefits along with improved working conditions. Clearly, these moves will impact the bottom line for both AMZN and SBUX. As of the close of trading May 6, SBUX shares have fallen 34.6% year to date while AMZN shares have dropped 31.2% year to date. Investors with a bearish outlook for SBUX and AMZN may want to consider purchasing long dated Put options or bear spreads to capture the likely share price declines for these companies.
My weekly radio show is now on holiday and should return soon on WWPR 1490 AM. My prior radio shows and columns are available here.
If you are unhappy with the returns now offered by money market funds feel free to contact us.