ARTICLES

An Alternative To Money Market Funds

September 2016

August is behind us and investors will now focus on the Federal Reserve meeting to be held on September 20-21. After this meeting, the Fed has two more meetings scheduled for 2016. One will be held November 1-2, just prior to Election Day. The final meeting will be held December 13-14. Last month, Fed Chair Janet Yellen spoke at a conference in Jackson Hole, WY. She is inclined to raise rates but noted that any decision would continue to be based on economic reports and the unemployment picture.

Well, the Commerce Department reported that the US economy grew at a sluggish rate of 1.1% through the second quarter of 2016. And despite a deceptively low unemployment rate, over 94 million Americans are not in the workforce as per the Labor Department. So, many economists do not see the Fed raising rates until December. The data leading into the September meeting is tepid, while the meeting in November will conclude a week before the Presidential election.

OPEC will hold a meeting in Algeria September 26-28. Both Russia, a non OPEC member, and Iran have confirmed they will attend this meeting, which was previously unscheduled. News of this meeting helped Brent crude oil to briefly trade above $50/barrel. Bear in mind that OPEC’s members remain at odds, so there is no guarantee that the divided cartel will be able to agree on production cuts or caps at the upcoming meeting.

Several retailers reported better than expected results last month including JC Penney, Macy’s, Kohl’s and Walmart. Due to the large short interest in these companies’ shares, all of these companies saw big rallies in their share prices upon releasing their results. Unfortunately for Staples, Sears and Target, they were not so blessed. Staples forecast that its sales will decline for the fifteenth straight quarter. Sears also saw a decline in revenues and posted another quarterly loss. Meanwhile, Target actually reported profits ahead of analyst estimates but its shares were clipped due to its weak outlook for the remainder of 2016.

The low interest rate environment continues to be a major story throughout 2016. Thanks to low interest rates, investors pushed the Nasdaq, S&P 500 and the Dow Jones Industrial Average to record highs in August. The best performing sectors in the S&P 500 through August were the Telecoms, Utilities and Energy. Many of the stocks in these sectors offer dividend yields above 3.50%, more than double the yield on the 10 Year US Treasury. Altria, a favorite of dividend investors despite being a tobacco stock, raised its dividend last month for the 50th time in the past 47 years. Stocks with a history of increasing their dividend such as Altria will continue to be in demand due to the low interest rate environment.

My weekly radio show on WWPR 1490 AM will return at 2pm on Friday, September 9. My prior radio shows and news columns are available on my firm’s website (www.amescapmgmt.com).

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

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