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An Alternative To Money Market Funds

April 2024

MARKET OVERVIEW
March  is behind us and what a great start to the year we have seen!! After a strong 2023 for the major indices, the market has continued to power higher. At the close of  trading on March 28, marking the end of the first quarter, the Dow Jones Industrial Average was up 5.62%, the S&P 500 was up 10.16% and the Nasdaq was up 9.11%.

Some items of note: Boeing CEO Calhoun will leave the company at the end of the year as its aircraft problems continue, GE completed  its spinoffs and now is focused solely on its aviation business, EQT and Equitrans plan to merge, Disney won its proxy battle over Nelson Peltz, Choice Hotels dropped its bid for Wyndham Hotels, Nordstrom may be taken private by its founding family and Chipotle announced a massive 50-1 stock split.

ECONOMIC SUMMARY
Last Friday’s Nonfarm Payroll Report (NFP) was stronger than expected as 303,000 jobs were added in March, well above the estimate of 200,000. The unemployment rate inched lower to 3.8% marking the 26th straight month that the jobless rate stayed below 4%. The January and February jobs figures were revised up by a combined 22,000 jobs. Finally, the U-6 rate held steady at 7.3%. The next jobs report will arrive May 3.

FEDERAL RESERVE
The Fed met March 19-20 and kept rates at the 5.25% - 5.50% level. Fed Chair Powell made clear the Fed is focused on its 2% inflation target and did not see rates being cut in the near term. The Fed will meet again April 30 - May 1.

STOCKS TO WATCH
Even though interest rates have risen sharply over the past 2 years, the shares of US home builders have continued to move higher. Part of the reason for this sector’s rally is the severe housing shortage America currently faces. Monthly rent and home prices remain at high levels due to this shortage. People with mortgages at 4% or less are in no rush to sell their homes as today’s mortgage rates are substantially higher at 7% or above. As a result, the number of existing homes available for sale remains limited.

Another reason why the shares of major US home builders continue to rally is the use of clever financial engineering by the major home builders. Over the past 5 years, the major home builders have aggressively repurchased their shares via stock buyback programs. For example, Toll Brothers (TOL) had 154.2 million fully diluted shares as of Oct. 31, 2018. As of Jan. 31 2024, TOL had 105.1 million fully diluted shares outstanding, a decline of nearly 32%. Lennar (LEN) had 308.6 million fully diluted shares outstanding as of Nov 30, 2018. As of Nov. 30 2023, LEN had 279.4 million fully diluted shares outstanding, a decline of 9.5%. D. R. Horton (DHI) had 376.3 million fully diluted shares outstanding as of Sept. 30, 2018. As of Sept. 30 2023, DHI had 334.8 million fully diluted shares outstanding, a decline of 11%.

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.

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