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An Alternative To Money Market Funds

February 2020

2020 has begun with the major indices all reaching new all time highs in early February. What has impressed many market observers is how fast the major indices recovered after the coronavirus news from China caused a sharp selloff in late January. As you may recall, on January 31st, the Dow Jones Industrial Average plunged over 600 points on fears the deadly coronavirus could be the next global epidemic. Let’s hope medical teams around the world will quickly develop drugs and vaccines to limit the damage.

Last Friday, the first Nonfarm Payroll Report of the new decade arrived. January’s report showed strong growth as payrolls increased by 225,000, well ahead of the 165,000 jobs estimate. The U-3 unemployment rate actually rose a hair from 3.5% to 3.6% as more people entered the labor force in search of work. The U-6 rate, a broader measure of the employment picture, also rose slightly, from 6.7% to 6.9%. The closely watched labor participation rate rose to 63.4%, its highest level in the Trump Presidency.

The Federal Reserve concluded its first meeting of 2020 on January 29 and elected to hold rates steady. Fed Chairman Jerome Powell cited continued moderate economic growth and a strong job market as the basis for holding rates steady. Many strategists believe the Fed will stand pat for all of 2020. The Fed voted unanimously to hold the key Fed Funds rate in a range of 1.50% to 1.75%. With the recent drop in interest rates, it will be interesting to see if the yield on the 10 Year US Treasury can sustain a level below the lower end of the Fed Funds target of 1.50%. Such a move could push the Fed to actually cut rates later this year.

Tesla’s (TSLA) amazing run has continued even as other European and American automakers have announced plans to introduce many new electric vehicle models over the next two years. On January 29, TSLA released its 4th quarter results and the news set off an surge in TSLA’s share price. TSLA reached a record high of $968.99 on February 4 on the belief it has turned the corner for consistent profitability. However, after a closer look at its earnings release, we see that TSLA actually lost $862 million on a GAAP basis (generally accepted accounting principles) for 2019!!

Although out of favor, the major oil companies now offer very attractive dividend yields along with the potential for strong capital appreciation once fears of the coronavirus subside. Chevron raised its dividend by 8.4% on January 29 making 2020 its 33rd consecutive year of dividend increases. It was recently yielding nearly 5% (4.74%). Exxon now yields over 5.50% and is expected to raise its dividend in late April for the 38th straight year. Finally, Occidental now yields over 7.50% and is expected to raise its dividend for the 18th straight year in July.

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 columns are available here.

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