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An Alternative To Money Market Funds

February 2022

MARKET OVERVIEW
January is behind us and what a rough month it was!! The Dow Jones Industrial Average ended the month down 3.32% while the S&P 500 was down 5.26% and the Nasdaq was down 8.98% in January. The 10 Year US Treasury ended the month with a yield of 1.78% while both Brent and WTI crude oil each ended up over 17% for the month. In fact, the energy sector was the only sector of the S&P 500 to post a positive return in January.

ECONOMIC SUMMARY
Last Friday’s Nonfarm Payroll Report (NFP) was surprisingly strong with 467,000 jobs added.
The forecast was for a gain of 125,000 jobs. The website zerohedge.com poured cold water on this report as it questioned just how strong the numbers actually were. In fact, the 467,000 jobs reported was substantially higher than the forecasts of the 78 economists polled by Reuters. So, besides the massive job numbers reported last Friday, the Department of Labor also revised the December and November figures significantly. December was revised from 199,000 to 510,000 while November was revised from 249,000 to 647,000.

The U-3 unemployment rate actually rose slightly in January moving up to 4.0% from 3.9% in December. Meanwhile the closely followed U-6 rate actually declined from 7.3% to 7.1%. Also positive in the report was the Labor Participation Rate. It rose to 62.2% from 61.9% last month. Let’s see if the employment picture stays strong when next month’s report comes out  March 4.

FEDERAL RESERVE
The Fed held its first meeting of 2022 January 25-26. Fed Chairman Powell made clear the Fed will begin raising rates, perhaps as soon as the March 15-16 meeting. In addition, Powell said the Fed would soon wind down its asset purchases and he acknowledged the inflation picture continues to be a problem. As a result, additional rate hikes will likely be needed.

Keep in mind that the US is now servicing a debt load of more than $30 trillion. This enormous debt load can only be handled with extremely low interest rates. For example, if the interest rate paid by the US increased just by 1% (100 basis points) the US budget deficit would increase by $300 billion annually!! So, the Fed is limited in how far they can push rates higher.

STOCKS TO WATCH
The gaming sector saw a flurry of deal activity with 3 deals announced last month. Microsoft will buy Activision in a $69 billion cash deal. Take Two Interactive will buy Zynga in a $12.7 billion cash and stock deal while Sony will acquire privately held Bungie for $3.6 billion. The FTC said it will review the Microsoft Activision deal in a clear sign the Biden administration will take a tough approach to large deals.

My weekly radio show is now on holiday and should return soon on WWPR 1490 AM. My prior radio shows and columns are available on our website (www.amescapmgmt.com).

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

 

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