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An Alternative To Money Market Funds

June 2024

MARKET OVERVIEW
May is behind us and what a solid month it was!! After a strong start in 2024 for the major indices, the market gave back some of its gains in April. But May saw the major indices all hit record highs. At the close of  trading on May 31, the Dow Jones Industrial Average was up 2.64%, the S&P 500 was up 10.64% and the Nasdaq was up 11.48%.

Some items of note: Conoco is buying Marathon Oil, Waste Management is acquiring Stericycle, Chipotle shareholders approved a 50-1 stock split, Nvidia passed Apple as the S&P 500’s most valuable company by market cap, announced its first dividend and is splitting its shares 10-1.  Both the Bank of Canada and the European Central Bank cut interest rates, KKR, CrowdStrike and GoDaddy will join the S&P 500 on June 24 replacing Comerica, Illumina and Robert Half while DuPont said it was splitting itself into 3 publicly traded companies. Finally, media mogul Rupert Murdoch got married for the 5th time (but hey, who’s counting?)

ECONOMIC SUMMARY
Last Friday’s Nonfarm Payroll Report (NFP) was stronger than expected as 282,000 jobs were added in May, well above the estimate of 180,000. The unemployment rate inched higher to 4.0%, ending the streak of 27 straight months that the US jobless rate stayed below 4%. The Labor Participation Rate dipped to 62.5%. Finally, the U-6 unemployment  rate remained flat at 7.4%. The next jobs report will arrive July 5.

FEDERAL RESERVE
The Fed meets June 11-12 and is expected to keep rates at the 5.25% - 5.50% level. Friday’s strong jobs report likely ends any chance of a rate cut at the June meeting. Fed Chair Powell made clear at the last meeting that the Fed is focused on its 2% inflation target. He did not see rates being cut in the near term at the April meeting nor any rate increases this year.

STOCKS TO WATCH
Last month, Barry Sternlicht, Chairman and CEO of Starwood Property (STWD), announced its Real Estate Income Trust fund was limiting withdrawals. Redemptions will now be capped at 0.33% of the fund’s net asset value each month. Blackstone’s real estate fund made a similar move in November of 2022. Blackstone lifted its fund’s restrictions in March of this year. These restrictions highlight one of the significant risks when investing in private placements, a lack of liquidity. More firms may soon announce similar restrictions on their private placement funds as the commercial real estate market is going through a rough stretch.

According to a recent FDIC report, banks currently face $517 billion in unrealized losses with 63 banks on the brink of insolvency. Recently, Canada’s largest pension fund sold properties in Manhattan and San Francisco for $225 million less than what they originally paid. Investors who seek to invest in real estate but also want liquidity may want to consider investing in publicly traded REITs. Specifically in REITs that focus on shopping centers and shopping malls. Among those firms are Simon Property Group (SPG), Federal Realty (FRT), NNN REIT, formerly known as National Retail Properties (NNN), Regency Centers (REG) and KIMCO (KIM). All of these firms are actively traded, offer generous dividend yields, along with strong growth in earnings and cash flow. Some have consistently increased their quarterly dividend year over year. In fact, FRT has increased its dividend 56 straight years while NNN has increased its dividend 34 straight years!!

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

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