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An Alternative To Money Market Funds

October 2021

September is behind us and what a volatile month it was!! Last month, the S&P 500 index fell over 5% from its all time high. This was the S&P 500’s biggest monthly drop since March 2020. The yield on the 10 Year US Treasury jumped from its recent low and ended trading on Friday October 8 yielding 1.61%. Many economists view the rising interest rates as a sign of economic strength. However, the jump in rates may dim the allure of equities. The dividend yield on the S&P 500 as of October 8 was 1.32%, nearly 30 basis points below the yield on the 10 Year US Treasury.

Last Friday’s Nonfarm Payroll Report (NFP) was quite disappointing. 190,000 jobs were added, well below the forecast of 500,000. The U-3 unemployment rate dropped from 5.2% to 4.8%. The U-6 rate declined to 8.5% while the Labor Participation Rate slipped to 61.6% from 61.7% in the prior month. Let's see if the employment figures improve when the next NFP report is released on November 5.

The Fed concluded its 2 day meeting September 22. As expected, Fed Chairman Jerome Powell made clear the Fed would continue its accommodative policy. He indicated the Fed will consider tapering its bond buying but Friday’s Nonfarm Payroll Report may delay any plans to taper for a while. After all, Friday’s disappointing NFP report was the second month in a row the jobs added were well below forecasts. The Fed will meet again November 2-3.

Altria (MO) currently holds a 10.2% stake in AB InBev (BUD), the world’s largest brewer. MO obtained this stake in 2016 as it helped finance BUD’s acquisition of SABMiller. The lockup on MO’s stake expired on Sunday October 10. Bloomberg.com reported BUD’s market cap as of October 8 was nearly $111 billion ($110.96). So, MO’s stake in BUD is worth about $11 billion. Note that BUD is off 21.4% in 2021 while MO is up 13.98%

In July, MO sold its Ste. Michelle Wine Estates business to Sycamore Partners for $1.2 billion. Bank of America (BAC) believes MO is seeking to focus on its tobacco business and recently placed a BUY rating on MO with a $58 price target. They believe MO is going to divest its stake in BUD over time using the proceeds to buy back stock when strategic. MO raised its quarterly dividend 4.65% on August 26 to 90c per share. Its $3.60 annual dividend now yields 7.70% based on MO’s $46.73 closing price on Friday.

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

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

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