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An Alternative To Money Market Funds

August 2022

MARKET OVERVIEW
July is behind us and what a month it was!! The major averages rose strongly during the month helping to trim their negative performance for 2022. As of July 31, the Dow Jones industrial Average continued to be the best performing index, down -9.61% year to date. Meanwhile, the S&P 500’s decline improved to -13.34% and the Nasdaq trimmed its decline to -29.51%. The best performing sector continues to be energy, up 31.97% year to date as of July 31.

ECONOMIC SUMMARY
Last Friday’s Nonfarm Payroll Report (NFP) was quite strong as 528,000 jobs were added, well ahead of the estimate of 258,000 jobs. The U-3 unemployment rate dipped to 3.5%. Meanwhile, the U-6 rate held firm at 6.7%. The Labor Participation Rate dipped slightly from 62.2% in June to 62.1% in July. Average Hourly Earnings rose 0.5% and are up 5.2% year over year. The next NFP report will be released September 2.

FEDERAL RESERVE
The Federal Reserve met July 26-27 and as widely expected, raised rates by 75 basis points pushing the Fed Funds rate to the 2.25-2.50% level. The Fed will likely raise rates by another 75 basis points at the September 20-21 meeting. The strong jobs report on Friday led many market observers to cast doubt about recent recession fears. Thus, many economists believe the strong jobs report will push the Fed to an additional rate increase at the September 20-21 meeting.

STOCKS TO WATCH
Last month, German automaker Volkswagen announced its CEO Herbert Diess would leave the company effective September 1. This is a full 3 years before the former BMW executive’s deal was to end!! A variety of reasons were cited for the Diess dismissal by Volkswagen. Among them were his push to create an automobile linked software unit (CARIAD) and his strong push to make Volkswagen a leader in electric vehicles. Diess planned to spend over $90 billion on new plants, R&D, battery materials and employee training.

Earlier this year, Stellantis CEO Carlos Tavares and BMW CEO Oliver Zipse cautioned that the EV push by the major automakers was occurring too soon. Fuel based vehicles (FVs) remain far more affordable to the public than EVs. In addition, FVs can be refueled far more quickly than an EV can be charged.

The push towards EVs has not gone unnoticed by those who are employed by the auto makers. For example, Ford has split the company into 2 divisions, Ford Model E (EVs) and Ford Blue (FVs). Ford Blue recently announced it will cut its workforce of 31,000 by 8,000 jobs. Note that barely 4% of all vehicles sold in the US are EVs. So, by a margin of nearly 96-4, Americans prefer to buy FVs. Automakers may face billions in losses if EVs do not catch on soon.

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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