AN ALTERNATIVE TO MONEY MARKET FUNDS
By Don Ames, Sarasota Family Office Association
July is behind us and August has started off strongly. Last Friday’s Nonfarm Payroll Report helped stocks roar ahead as 1.76 million jobs were created in July, better than the estimate of 1.48 million jobs. The U-3 unemployment rate fell to 10.2% from 11.1% in June. The U-6 rate, a broader measure of the employment picture widely followed by economists, fell to 16.5% from 18% a month ago. Meanwhile, the labor participation rate declined slightly from 61.5% to 61.4%. The next unemployment report is scheduled for September 4.
Since bottoming in March, the major equity indices have made an amazing recovery. 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 August 7, the NASDAQ index is up 22.72% in 2020. Meanwhile, the Dow Jones industrial Average is down 3.87% while the S&P 500 is up 3.73%, year to date. With the S&P 500 now in positive territory for 2020, we now have full confirmation that the shortest bear market in history has come to an end.
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. As of the close of trading on August 7, West Texas Intermediate crude oil closed @ $41.60/barrel while Brent closed @ $44.69/barrel. Despite the rally, several major oil companies have slashed their dividends including Occidental,
Royal Dutch Shell and most recently, BP. BP cut its dividend in half on August 4, just 6 months after it raised its dividend by 2.44% on February 4!
Last Saturday, August 8, President Trump signed 4 executive orders to provide added stimulus to the economy. These orders provide student loan relief, extend unemployment benefits, block evictions and provide a payroll tax holiday. Some Democrats claim they will seek to challenge in
Court the legality of these executive orders. But, any challenge is unlikely to be resolved before Election Day, November 3rd.
Special Purpose Acquisition Companies (SPACs) have emerged as an alternative to IPOs since the capital can be raised more quickly and with certainty. Typically, a SPAC has 2 years to make an acquisition or liquidate and return the funds to investors. SPACs also enable smaller and riskier companies to go public. The SPAC boom can be traced to the coronavirus outbreak as IPO roadshows are hard to do because of social distancing issues in many locations. We can expect to see more SPACs raising capital since capital can be raised far more quickly than with a traditional IPO.