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An Alternative To Money Market Funds

December 2020

November is behind us and what an amazing month it was!! The major indices all rallied strongly as the Dow Jones Industrial Average “DJIA” had its best month since 1987. The DJIA increased by 11.8% in November while the S&P 500 gained 10.8% and the Nasdaq rose 11.8%. As of the 4th of December, these three indices were trading at new record highs. But all three indices are also trading at lofty PE multiples based on their 2021 forecast earnings. The DJIA is trading at about 24x forecast earnings, the S&P 500 is trading at about 25x and the Nasdaq is trading at about 32x forecast earnings.

Last Friday’s Nonfarm Payroll Report showed the economy slowing as 245,000 jobs were created in last month, well below the forecast of 470,000. The U-3 unemployment rate fell to 6.7% compared to 6.9% in October. The U-6 rate, a broader measure of the employment picture widely followed by economists, fell to 12.0%, down from 12.1% a month ago. Meanwhile, the closely watched labor participation rate declined to 61.5% from 61.7% last month. The first 2021 monthly employment report will arrive January 8.

The final Fed meeting of 2020 will take place December 15-16. As of December 4, the 10 Year US Treasury ended trading with a yield of 0.97%. A number of market strategists are concerned about the rise in interest rates as the US national debt is now over $27 trillion. Higher interest rates will negatively impact the US budget deficit and could hamper the strong homebuilding sector, a real bright spot for the US economy in 2020.

Tesla’s remarkable year has continued. The shares are up over 600% year to date!! After the close of trading December 18, Tesla will join the S&P 500. Co-founder Elon Musk is now the world’s second richest man moving ahead of Bill Gates thanks to Tesla’s remarkable rally in 2020. On December 3, Goldman Sachs raised its price target on the shares to $780 and also upgraded the shares to a BUY from NEUTRAL.

Both Exxon and Chevron slashed their capital expenditure forecast for 2021 and beyond. Exxon sees 2021 capital expenditures of $16-19 billion then $20-25 billion through 2025. Chevron sees capital expenditures of $14 billion in 2021 and then $14-16 billion annually through 2025. Exxon also expects to reduce its headcount globally by 15% by the end of next year. It also announced November 30 it will record a noncash charge of $17-20 billion on its natural gas assets. These assets are largely from Exxon’s disastrous XTO acquisition in 2010. What a costly mistake!!

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.

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