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An Alternative To Money Market Funds

March 2023

MARKET OVERVIEW
February is behind us and March has begun with a thud after the stunning collapse of Silicon Valley Bank on Friday. As of the close of trading on Friday March 10, the Dow Jones Industrial Average is down 3.73% year to date, while the S&P 500 is up 0.58%% and the Nasdaq, the best performer of the major indices, is up 6.42%. The two best performing sectors so far have been Information Technology and Consumer Services.

ECONOMIC SUMMARY
Last Friday’s Nonfarm Payroll Report (NFP) was quite strong as 311,000 jobs were added, well above the estimate of 205,000 jobs. The U-3 unemployment rate rose to 3.6%. Meanwhile, the U-6 rate ticked up slightly to 6.8% last month. The Labor Participation Rate increased slightly to 62.5% while Average Hourly Earnings rose slightly to 4.4% in this month’s report, year over year. The next NFP report arrives on April 7.

FEDERAL RESERVE
The next Fed meeting will take place March 21-22. Recent economic reports have been strong. But, many economists believe the stunning collapse of Silicon Valley Bank will lead the Federal Reserve to only increase rates by a quarter point at the March meeting. Keep in mind, the collapse of Silicon Valley Bank is the second largest in US history. The bank had been in business for 40 years and was a member of the S&P 500. After this month’s meeting, the next Fed meeting will take place May 2-3.

STOCKS TO WATCH
Many market strategists will be spending the next few days trying to determine the ultimate damage caused by the collapse of Silicon Valley Bank (SVB). The speed of SVB’s collapse was extraordinary. But what led to the collapse? One reason cited is the suspension of mark to market accounting during the financial crisis back in 2009. As a result, banks can hold bonds as investments and not mark any losses. According to the FDIC, US banks are sitting on more than $600 billion in unrealized losses on their securities holdings. These losses resulted from when the banks purchased bonds while interest rates were substantially below where they are now.

Things will get interesting when trading resumes on Monday. Currently, the FDIC insures deposits of up to $250.000. The FDIC estimates that about 95% of SVB’s deposits were uninsured!! SVB had 17 branches in California and Massachusetts  when it closed on Friday. It made some notable acquisitions in recent years such as Leerink Partners, Boston Private and Moffett Nathanson. Finally, Jim Cramer on his CNBC show “Mad Money” recommended buying SVB shares back on February 8. No doubt he regrets making that call now.

My weekly radio show is now on holiday and should return soon on WWPR 1490 AM. My prior radio shows are available here and columns here.

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

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