An Alternative To Money Market Funds
September is behind us and what a difficult month it was! Historically, September is the worst month of the year for the stock market and this year was no exception. The major indices all had a correction after the strong rally from the March lows. Last Friday, we learned that President Trump was hospitalized after testing positive for the coronavirus. A number of members of Congress and staff members also tested positive including First Lady Melania Trump. We all hope they have a speedy recovery!!
Last Friday’s Nonfarm Payroll Report showed the economy continues its strong recovery as nearly 661,000 jobs were created in September. This was below the estimate of 800,000 jobs. The U-3 unemployment rate fell to 7.9% compared to 8.4% in August. The U-6 rate, a broader measure of the employment picture widely followed by economists, fell to 12.8%, down from 14.2% a month ago. Meanwhile, the closely watched labor participation rate fell to 61.4%, down from 61.7% last month. Note that since the lockdowns began in April, a record 11.4 million jobs have been added in 5 months!! The next monthly employment report will arrive November 6.
The Federal Reserve concluded its two day meeting September 16. As expected the Fed made clear it would take whatever steps were needed to enable the economy to continue its recovery. It also made clear the current near zero rate environment will likely stay for several more years. So, borrowers will continue to be rewarded while savers will be punished. 2020 has seen corporate debt issued at a record amount as companies are able to sell debt at all time low yields using the proceeds to either refinance existing debt, expand, add to their cash levels or do stock buybacks.
There is an elite group of American companies labeled “Dividend Aristocrats”. These are publicly traded firms that have raised their quarterly dividend for 25 consecutive years or more. Less than 70 firms make this exclusive list. Among them are Johnson & Johnson, McDonald’s, Coca-Cola, 3M, AT&T, Walmart, Target et al.
Exxon Mobil is currently a Dividend Aristocrat, having raised its dividend 37 straight years. But its status is in jeopardy. It typically makes its dividend increase in late April but this year declined to do so. Exxon has until the end of this year to make an increase, no matter how small it is in order to maintain its Dividend Aristocrat status. Exxon’s Board will meet to discuss the dividend in late October. Management will report its 3rd quarter results on October 30 and stated in an SEC filing Oct 1 that its results will be below forecast due to the impact of the coronavirus.
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 and newspaper columns are available here.
If you are unhappy with the returns now offered by money market funds feel free to contact us.