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The Weekly Market Snapshot from Frazier Allen

 

Weekly Market Snapshot

Market Commentary by Scott J. Brown, Ph.D., Chief Economist

Scott J. Brown Ph.D., Chief Economist Raymond James Investment Services

Scott J. Brown Ph.D., Chief Economist Raymond James Investment Services

As expected, the Federal Open Market Committee (FOMC) left the target range for the overnight lending rate unchanged at 0% to 0.25% and retained its conditional commitment to keep rates low for “an extended period.” The wording of the FOMC’s economic assessment was little changed. The committee repeated that “the pace of recovery is likely to be modest in the near term.” The big change in the statement was the admission that “measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability.

In other words, the Fed views the underlying trend in inflation as too low (for those of you who remember the inflation of the 1970s, this may seem extraordinary). Recall that the Fed’s definition of “price stability” does not mean 0% inflation – rather, as former Chairman Alan Greenspan put it, “price stability exists when inflation is not a consideration in household and business decisions.

Unlike, other central banks, the Federal Reserve does not have an inflation target. However, over the years, Fed officials have suggested a comfort range of 1% to 2% (with some more focused on 1.5% to 2.0%). Most measures of core inflation have been trending below 1%.

The question now is whether the Fed is willing to do anything about it. In its policy statement, the FOMC indicated that it is “prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate.” However, there was nothing in the policy statement to suggest that the Fed is in any great hurry to act. Implicitly, further Fed action – an increase in outright purchases of Treasury securities or mortgage-backed securities – will depend on a more substantial deterioration in the economic outlook, which would coincide with greater downward pressure on inflation.

Next week, the economic data will have some importance for the markets, with the Institute for Supply Management (ISM) manufacturing survey results carrying the most weight. However, looking ahead, the September Employment Report (due October 8th) will have a major influence on near-term economic expectations and on the outlook for Fed policy.

Indices

  Last Last Week YTD return %
DJIA 10662.42 10594.83 2.25%
NASDAQ 2327.08 2303.25 2.55%
S&P 500 1124.83 1124.66 0.87%
MSCI EAFE 1545.07 1525.81 -2.26%
Russell 2000 648.84 647.81 3.75%

Consumer Money Rates

  Last 1-year ago
Prime Rate 3.25 3.25
Fed Funds 0.25 0.25
30-year mortgage 4.31 5.25

Currencies

  Last 1-year ago
Dollars per British Pound 1.571 1.641
Dollars per Euro 1.336 1.478
Japanese Yen per Dollar 84.330 91.400
Canadian Dollars per Dollar 1.030 1.071
Mexican Peso per Dollar 12.628 13.340

Commodities

  Last 1-year ago
Crude Oil 73.38 68.77
Gold 1295.28 1011.60

Bond Rates

  Last 1-month ago
2-year treasury 0.43 0.55
10-year treasury 2.58 2.62
10-year municipal (TEY) 3.92 3.92

Treasury Yield Curve – 9/24/2010 

S&P Sector Performance (YTD) – 9/24/2010 

Economic Calendar

September 28th  —  S&P/C-S Home Prices (July)
Consumer Confidence (September)
September 30th  —  Jobless Claims (week ending September 25th)
Real GDP (2Q10, 3rd estimate)
Chicago Purchasing Managers Index (September)
October 1st  —  Personal Income, Spending (August)
ISM Manufacturing Index (September)
Motor Vehicle Sales (September)
October 5th  —  ISM Non-Manufacturing Index (September)
October 8th  —  Employment Report (September)
October 11th  —  Columbus Day (bond market closed)
October 15th  —  Consumer Price Index (September)
Retail Sales (September)
November 2nd/3rd  —  FOMC Meeting

Important Disclosures

Past performance is not a guarantee of future results. There are special risks involved with global investing related to market and currency fluctuations, economic and political instability, and different financial accounting standards. The above material has been obtained from sources considered reliable, but we do not guarantee that it is accurate or complete. There is no assurance that any trends mentioned will continue in the future. While interest on municipal bonds is generally exempt from federal income tax, it may be subject to the federal alternative minimum tax, state or local taxes. In addition, certain municipal bonds (such as Build America Bonds) are issued without a federal tax exemption, which subjects the related interest income to federal income tax. Investing involves risk and investors may incur a profit or a loss.

US government bonds and treasury bills are guaranteed by the US government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. US government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the US government.

Commodities trading is generally considered speculative because of the significant potential for investment loss. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Specific sector investing can be subject to different and greater risks than more diversified investments.

Tax Equiv Muni yields (TEY) assume a 35% tax rate on triple-A rated, tax-exempt insured revenue bonds.

Material prepared by Raymond James for use by its financial advisors.

The information contained herein has been obtained from sources considered reliable, but we do not guarantee that the foregoing material is accurate or complete. Data source: Bloomberg, as of close of business September 23rd, 2010.

©2010 Raymond James Financial Services, Inc. member FINRA / SIPC.


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