AN ALTERNATIVE TO MONEY MARKET FUNDS
By Don Ames, Ames Capital Management and Sarasota Family Office Association
April 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 May 8, The NASDAQ is up 1.66% year to date, while the S&P 500 is down 9.32% and the Dow Jones Industrial Average is down 14.74%. Note that on May 12, Dexcom and Domino’s Pizza were added to the S&P 500 replacing Capri Holdings and Allergan.
Last Friday, the April Nonfarm Payroll Report was released and it was ugly. The unemployment rate soared to 14.7%. The Labor Department stated that the US lost 20.5 million jobs in April. By far, this is the largest and most rapid decline since the Labor Department began tracking these statistics in 1939. Amazingly, the unemployment rate reached a record low of 3.5% in February. The US has entered a recession. It will likely remain so until progress has been made in the battle to end the coronavirus.
The coronavirus has hit the retail sector quite hard. Lord & Taylor will soon liquidate. J. Crew and Neiman Marcus filed for bankruptcy last week while J.C. Penney is expected to file soon. Earlier this year, Modell’s Sporting Goods and Papyrus filed for bankruptcy. Meanwhile retail giants such as Amazon, CVS, Walgreens, Walmart, Target, Home Depot and Lowe’s have seen strong sales growth even with the economy in a deep recession.
Congress, President Trump and the Federal Reserve have moved aggressively to keep the economy open. The Fed cut rates to zero at an emergency meeting in March and made clear at its meeting in late April that its quantitative easing program will continue at maximum strength in its quest to revive the US economy, the largest in the world. The Fed’s next scheduled meeting is to take place June 9-10.
The oil market has rallied strongly on hopes the US, Saudi Arabia and Russia will succeed in cutting production. The details are continuing to be negotiated but Brent crude moved back above $30/barrel at the close of trading on May 8. Meanwhile WTI crude rallied into the end of last week closing at just under $25/barrel. As a result of the coronavirus, demand for oil and gas plunged. As states in various parts of the US began going back to business, demand for gasoline has risen quickly. The energy industry employs an enormous number of people around the world so it is in our interest to see the industry recover.