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An Alternative To Money Market Funds

October 2024

MARKET OVERVIEW
September is behind us and what a strong month it was!! The Dow Jones Industrial Average reached its all time high on September 27 while the S&P 500 reached its all time high on September 26. The January through September period has provided the strongest performance of the S&P 500 since 1997. As of September 30, the Dow Jones Industrial Average was up 12.31%, the S&P 500 was up 20.81% and the Nasdaq was up 21.17%.

Some items of note: The strike by port workers on the Atlantic and Gulf Coast was settled days after it was launched as the workers received a 62% increase in pay over the life of the contract. Nelson Peltz stepped down as Chairman of Wendy’s Board, Southwest Airlines is bracing for a proxy fight with activist Elliott Investment Management, Goldman Sachs announced it will take a $400 million charge as it exits its consumer business, Qualcomm approached Intel regarding a possible acquisition, Directv will acquire the DISH network from Echostar and Norfolk Southern has replaced its CEO Alan Shaw after learning he had an improper affair with the company’s chief legal officer.

ECONOMIC SUMMARY
Friday’s Nonfarm Payroll Report was surprisingly strong as 254,000 jobs were added in September, well above the estimate of 150,000 jobs. The jobs report for the prior two months showed an upward revision of 72,000 jobs. The unemployment rate dropped slightly to 4.1% marking the 5th straight month the unemployment rate was at or above 4%. In addition, the closely watched Labor Participation Rate remained at 62.7% while the U-6 unemployment rate declined slightly to 7.7%. The October jobs report will be released on November 1, just 4 days prior to the 2024 Presidential election.

FEDERAL RESERVE
The Fed announced a 50 basis point cut in its base lending rate on September 18, surprising many analysts who expected a 25 basis point cut. This cut takes the range down to the level of 4.75% - 5%. The Fed will meet again November 6-7 and will hold its final meeting on December 17-18.

STOCKS TO WATCH
Over the past few weeks, the shares of both Nike “NKE” and Starbucks “SBUX” have enjoyed strong rallies. Disappointing share price performance led each company to replace its CEO. NKE closed on Friday @ $82.25 and the shares have risen 16.25% from its low price of $70.75 on August 5. SBUX closed @ $96.58 on Friday and its shares have risen 35% off of its low of $71.55 on July 16. It appears the rally will soon run out of steam as each company has vast operations in China.

For NKE, China accounts for 15% of its total revenue while for SBUX, China accounts for 9% of its total revenue. Both companies are facing strong competitive pressure from local Chinese companies which can offer products well below the offerings of both NKE and SBUX. Here is an example: Chinese coffee chain Luckin offers a similar size cup of coffee for one third of the cost of SBUX!! As a result of these competitive pressures, I do expect the share price of both NKE and SBUX to decline. One way of profiting from the share price decline would be by purchasing a bear put spread on both companies.

For example, I recommend purchasing a bear put spread expiring on March 21 of next year on both stocks For SBUX which closed @ $96.58 on Friday, I suggest buying the March 21 $95 put for $6.33 per contract and selling the March 21 $85 put for $2.87 per contract for a net cost of $3.46 per contract. If SBUX shares move below the $85 strike price, the trade earns $6.54 per contract or 189%!!

For NKE which closed at  $82.25 on Friday, I recommend purchasing a bear put spread expiring March 21. I suggest buying the $80 put for $4.70 per contract and selling the $72.50 put for $2.25 for a net cost of $2.45 per contract. If the shares close below the $72.50 strike price, the trade returns $5.05 per contract or 206%!!

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.

Disclaimer

The material contained in this website is for your private information. We are not soliciting any action upon it. The opinions expressed here are our present opinions only. The material is based upon information which we consider to be reliable. No representations are being made that it is accurate and complete and thus should not be relied upon as such. Past performance is neither an indication nor guarantee of future performance.