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An Alternative To Money Market Funds

May 2024

MARKET OVERVIEW
April is behind us and what a difficult month it was!! After a strong start in 2023 for the major indices, the market gave back some of its gains. At the close of  trading on April 30, the Dow Jones Industrial Average was up 0.34%, the S&P 500 was up 5.57% and the Nasdaq was up 4.31%.

Some items of note: US Steel shareholders approved the acquisition of the company by Nippon Steel but this deal will be difficult to complete due to legal and political obstacles, after 64  straight years of dividend increases, 3M announced it will cut its dividend, Tesla announced significant job cuts, United and Delta Airlines reported better than expected results, Skydance bid to acquire Paramount appears to be fading as Apollo and Sony have made a joint bid of $26 billion in cash for Paramount, VW workers in Tennessee agreed to join the United Auto Workers Union, Exxon completed its acquisition of Pioneer and Vistra will replace Pioneer in the S&P 500 before the start of trading on May 8

ECONOMIC SUMMARY
Last Friday’s Nonfarm Payroll Report (NFP) was weaker than expected as 175,000 jobs were added in April, well below the estimate of 250,000. The unemployment rate inched higher to 3.9% marking the 27th straight month that the jobless rate stayed below 4%. The Labor Participation Rate remained flat at 62.7%. Finally, the U-6 unemployment  rate moved up slightly to 7.4%. The next jobs report will arrive June 7.

FEDERAL RESERVE
The Fed met April 30 - May 1 and kept rates at the 5.25% - 5.50% level. Fed Chair Powell made clear the Fed is focused on its 2% inflation target and did not see rates being cut in the near term. He did state he did not see any rate increases this year. The Fed will meet again in early June (June 11 - 12).

STOCKS TO WATCH
Both Apple (AAPL) and Starbucks (SBUX) recently reported disappointing results. For AAPL, this was the 5th quarter out of 6 that quarterly revenues declined. But AAPL announced the largest US corporate buyback in history ($110 billion) and raised its dividend by 4% to 25c per quarter. This is the 12th straight year AAPL has increased its dividend.  As a result of these two actions, AAPL shares rallied nearly 6% on Friday.

Meanwhile, last Tuesday after the close of trading, SBUX reported an especially weak quarter. As a result, its shares plunged nearly 16% the following day. For both AAPL and SBUX, weak sales in China led to their difficulties. What cannot be stressed enough is the collapse of two of China’s largest real estate developers has put a major dent in China’s economy, the world’s second largest. Evergrande and Country Garden combined have over $500 billion in liabilities. To put this sum in perspective, Lehman Brothers, the largest bankruptcy in US history, had $613 billion in liabilities when it filed for bankruptcy in 2008. Indeed, it will be a while before China will be able to get its economy moving again.

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

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