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An Alternative To Money Market Funds


September 2017

August is behind us and the amazing stock market rally has continued into early September. Both the Dow Jones Industrial Average and S&P 500 reached record highs in August. The Nonfarm Payroll Report for August was weak as 156,000 jobs were created, compared with the estimate of 180,000. The unemployment rate last month ticked higher to 4.4%. But, the Labor Participation Rate stayed at 62.9%, near its 38 year low of 62.4% reached in September 2015.

Federal Reserve Chair Janet Yellen spoke last month at the annual Jackson Hole conference. She indicated the Fed would be cautious about raising interest rates the rest of this year. The poor jobs figures released September 1 and the impact of Hurricane Harvey likely means the Fed will stand pat when it next meets September 19-20 and perhaps until 2018 arrives. Note that Janet Yellen’s term as Fed Chair ends in February unless nominated again.

Hurricane Harvey slammed the Gulf Coast in late August making it one of the costliest natural disasters in history. The damage done to the Gulf Coast region is huge. The rebuilding effort will take years to complete but should be very stimulative for the US economy. For example, roads and bridges need to be rebuilt. Office towers, schools, factories, hospitals, shopping malls and homes will need significant repairs or be torn down with new facilities replacing them. Clothing, along with cars and trucks will need to be purchased as will appliances and furniture.

Dividend paying stocks such as utilities, retailers, automakers and consumer goods have lagged the market for 2017. The S&P 500 ended August up 10.4% year to date. Given the low interest rate environment and the likely stimulus created by the Hurricane Harvey rebuilding effort, these sectors should enjoy a healthy rally through the end of this year and 2018 as well.

There have been some significant developments in Mergers & Acquisitions. Dow Chemical and DuPont completed their merger on August 31. Then on September 1, the combined company began trading under the new ticker DWDP on the New York Stock Exchange. Amazon’s buy of Whole Foods was completed on August 28. AT&T is awaiting US regulatory approval for its buy of Time Warner. This is the final step needed to complete this deal.

As I mentioned in last month’s column, several large Private Equity firms in the US and Europe raised enormous sums of money for their newly launched buyout funds. Look for these funds to be deployed quickly with particular focus on sectors with generous dividend payouts. Financing an acquisition in part by eliminating the target company’s dividend has been a tool often used by the Private Equity industry.

My weekly radio show on WWPR 1490 AM returns at 12.30pm on Friday, September 8. See my prior radio shows here and news columns here .

If you are unhappy with the returns now offered by money market funds feel free to contact us.

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