Market Commentary by Scott J. Brown, Ph.D., Chief Economist
The economic data were mixed, still consistent with a moderate recovery and low inflation. Retail sales rose more than expected in October, led by improvement in vehicle sales. Ex-autos, sales were moderate. Industrial production was flat, but held down by a drop in the output of utilities (a function of moderate temperatures). The Fed’s two major regional manufacturing surveys were mixed (NY down sharply, Philadelphia up sharply). Inflation figures were lower than expected. Ex-food and energy the CPI rose 0.6% in the 12 months ending in October – a record low (the series began in 1957). Alternative measures of core inflation appear to be trending gradually lower.
While the economic data were important, the markets remained focused on the possible consequences of the Fed asset purchase program and, perhaps more importantly, on developments overseas, including troubles with the Irish banks and China’s attempts to cool inflation. Criticism regarding the Fed did not die down, and became more political.
There are valid concerns with the Fed’s asset purchase program, just as there are whenever the Fed cuts rates (with inflation trending very low, many of this worries seem overdone – the dollar has risen since the Fed announced its asset purchase plan and inflation in commodity prices is not the same as inflation in consumer prices). However, much of the criticism is coming from people who have no knowledge of monetary policy. Senior Fed officials responded to their critics at home and abroad, but the markets may not be fully recognizing that.
Next week, there will be a brief bounty of data ahead of the Thanksgiving holiday. Third quarter GDP growth figures are expected to be revised higher. Home sales figures are likely to be mixed. The Fed policy meeting minutes may not shed much light on things, but could help clarify (for the markets) why the Fed did what it did. Fresh figures for November will arrive in the following week, including the November Employment Report.
Indices
| Last | Last Week | YTD return % | |
| DJIA | 11181.23 | 11283.1 | 7.22% |
| NASDAQ | 2514.4 | 2555.52 | 10.81% |
| S&P 500 | 1196.69 | 1213.54 | 7.32% |
| MSCI EAFE | 1628.07 | 1640.29 | 2.99% |
| Russell 2000 | 720.84 | 731.58 | 15.26% |
Consumer Money Rates
| Last | 1-year ago | |
| Prime Rate | 3.25 | 3.25 |
| Fed Funds | 0.25 | 0.25 |
| 30-year mortgage | 4.55 | 5.03 |
Currencies
| Last | 1-year ago | |
| Dollars per British Pound | 1.603 | 1.672 |
| Dollars per Euro | 1.362 | 1.495 |
| Japanese Yen per Dollar | 83.600 | 89.430 |
| Canadian Dollars per Dollar | 1.019 | 1.053 |
| Mexican Peso per Dollar | 12.287 | 13.009 |
Commodities
| Last | 1-year ago | |
| Crude Oil | 81.85 | 79.58 |
| Gold | 1351.85 | 1144.00 |
Bond Rates
| Last | 1-month ago | |
| 2-year treasury | 0.50 | 0.35 |
| 10-year treasury | 2.89 | 2.56 |
| 10-year municipal (TEY) | 4.75 | 3.94 |
Treasury Yield Curve – 11/19/2010
S&P Sector Performance (YTD) – 11/19/2010
Economic Calendar
| November 23rd | — | Real GDP (3Q10, 2nd estimate) Existing Home Sales (October) FOMC Meeting Minutes (November 2nd-3rd) |
| November 24th | — | Jobless Claims (week ending November 20th) Personal Income, Spending (October) Durable Goods Orders (October) Consumer Sentiment (November) New Home Sales (October) |
| November 25th | — | Thanksgiving (market closed) |
| November 30th | — | Consumer Confidence (November) |
| December 1st | — | ISM Manufacturing Index (Novembers) Unit Auto Sales (November) Fed Beige Book |
| December 3rd | — | Employment Report (November) ISM Non-Manufacturing Index (November) |
| December 14th | — | 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 Noverber 18th, 2010.
©2010 Raymond James Financial Services, Inc. member FINRA / SIPC.
