AN ALTERNATIVE TO MONEY MARKET FUNDS
By Don Ames, Sarasota Family Office Association
May is behind us and what an amazing month it was for the markets! The spread of the deadly coronavirus hammered the markets in March. At its low on March 23, the S&P 500 fell over 35% from its record high in February while the Dow Jones Industrial Average fell over 38%. As of the close of trading on June 5, The NASDAQ index is up 9.38% in 2020, closing at an all-time high. Meanwhile, as of the close of trading June 5, the Dow Jones industrial Average is down 5.00% while the S&P 500 is down 1.14% year to date.
Last Friday, the May Nonfarm Payroll Report was released, and it was surprisingly strong with the jobless rate dropping to 13.3% from 14.7% in April. The Labor Department stated that the US added a record 2.5 million jobs in May. Analysts had forecast job losses of up to 7.8 million and a jobless rate as high as 21.5%. The widely followed U-6 rate showed a jobless rate for May of 21.2%, down from 22.8% in April, still quite high due to the impact of the coronavirus.
The oil market has rallied strongly since crashing into negative territory in April when it reached a record low price of -$37.63 for a barrel of WTI crude oil. Last Saturday on June 6, OPEC and its allies agreed to extend their production cuts for an additional month. OPEC and its allies plan to meet again June 18 to review the success of their production cuts. As of the close of trading on June 5, West Texas Intermediate crude oil closed @ $39.55/barrel while Brent crude oil closed @ $42.30/barrel.
As the economy recovers the IPO market and Merger & Acquisition activity are showing signs of life. Pliant Therapeutics, ZoomInfo Technologies and Warner Music Group all traded strongly after their IPOs were priced in early June. These IPOs offered proof there is pent up demand by investors for shares of newly public companies.
Meanwhile there is talk a bidding war could develop for Grubhub. Uber had offered to acquire Grubhub in May in an all-stock transaction for about $63/share. Recent media reports say two European firms, Delivery Hero and Just Eat Takeaway, are each pondering a bid for Grubhub. Sycamore Partners is reportedly seeking to buy JC Penney after the bankrupt retailer emerges from bankruptcy. Last week we learned that AstraZeneca held talks to combine with Gilead in a merger. Each firm is working to develop a vaccine for the coronavirus and if they did combine, they would be one of the largest pharmaceutical firms globally having a market cap well over $200 billion.