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An Alternative To Money Market Funds

October 2023

MARKET OVERVIEW
September is behind us and what a difficult month it was!! The 3td quarter also ended on September 30 and it was a difficult quarter too. For the month of September, the Dow Jones Industrial Average declined by 2.62%, the S&P 500 fell by 4.87% and the Nasdaq dropped by 5.81%.

ECONOMIC SUMMARY
Last Friday’s Nonfarm Payroll Report (NFP) was surprisingly strong as 336,000 jobs were added, well above the estimate of 170,000 jobs. The jump in payrolls was aided by teachers coming back to school, the travel and hospitality sectors and a big jump in part time workers who in many cases are holding  more than one job. By the way, the August figures were revised upward to 227,000 jobs added that month. The U-3 unemployment rate remained at 3.8% while the U-6 rate dipped slightly  to 7.0% . Meanwhile, the Labor Participation Rate held steady at 62.8%. The next jobs report will arrive on November 3.

FEDERAL RESERVE
The Fed met on Sept 19-20 and held rates steady at the current 5.25% - 5.50% level. Fed Chair Jerome Powell indicated that more hikes may be needed to cool inflation which is trending up again due to higher energy prices and the autoworkers’ strike. The Fed indicated it does not see any rate cuts anytime soon, perhaps not at all next year. The Fed next meets Oct 31-Nov 1.

STOCKS TO WATCH
On September 7, the Verizon Board of Directors raised the company’s dividend for the 17th straight year. The increase of 1.25c for the quarterly dividend means VZ shareholders will receive a payout of 66.5c per quarter.This dividend is payable November 1 to holders as of Oct. 10. As of the close of trading on Friday Oct 6, VZ shares ended the day @ $30.85/share and  were yielding 8.62%.

VZ’s elevated yield is a clear sign investors remain skeptical of the safety of the dividend. There is good reason for that concern. At the close of trading on December 31, 2019 VZ ended the decade @ $61.40/share. On Friday, the shares ended the week @ $30.85/share, a dramatic fall from the end of 2019. VZ is among the most heavily indebted companies in the S&P 500. Its debt and guaranteed leases as of June 30 totaled $177.65 billion!! According to VZ’s own website, VZ has $14.312 billion in debt maturing just in 2024. The interest rate it will pay on this debt will be dramatically higher than what it is currently paying on these debt issues. The increase in debt costs will eat into VZ’s cash flow eventually putting the dividend at risk.

In addition, VZ’s primary business is wireless phone service, a commodity business that often sees intense price wars. My own current plan with AT&T gives me unlimited data each month along with unlimited texting and calling between the US, Canada and Mexico. Other carriers offer similar plans putting a strain on VZ’s main revenue stream. Its outlook is not bright.

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.

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