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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

The economic data were mostly in line with expectations, generating relatively little reaction in the financial markets. Personal income and spending figures rose moderately in November. However, spending figures for September and October were revised significantly higher – implying that inflation-adjusted consumer spending (70% of overall Gross Domestic Product) is on track for more than a 4% annual rate in Q410 (vs. +2.4% in Q310 and +2.2% in Q210). In contrast, shipments of nondefense capital goods excluding aircraft trended at a much more moderate pace in the first two months of the fourth quarter (implying that business fixed investment will make a more modest contribution to Q410 GDP growth).

The PCE Price Index ex-food & energy, the Fed’s key inflation gauge, edged up 0.1% in November and was up just 0.8% over the last 12 months (too low for the Fed’s comfort). Real GDP rose at a 2.6% annual rate in the 3rd estimate for Q310 (vs. 2.5% in the 2nd estimate and +2.0% in the advance estimate), with inventory growth revised higher. A slower pace of inventory growth should subtract from GDP growth in Q410 or in Q111.

Market activity was relatively thin, as usual during this time of year. Investors are likely to continue debating the economic outlook for 2011. Oil prices are always a wildcard in the economy outlook. Crude has now risen to a little over $90 per barrel. Some of the recent increase is likely due to cold weather in North America and Europe. The average price of gasoline is a little over $3 per gallon, a level which has had a negative impact on consumer spending in the past. However, a reduction in payroll taxes arrives in January, which will boost disposable income.

Next week, the economic calendar is thin. Consumer confidence is likely to improve further in December, but should remain relatively low by historical standards. There could be minor market reactions to any surprises in the Chicago purchasing managers data or the Pending Home Sales Index. The bond market will face Treasury supply ($99 billion in 2-, 5-, and 7-year notes to be auction Monday, Tuesday, and Wednesday). Looking ahead, the data for the first week of 2011 will be important for the markets. The December Employment Report will be critical to the near-term outlook.

Indices

  Last Last Week YTD return %
DJIA 11559.49 11499.25 10.85%
NASDAQ 2671.48 2637.31 17.73%
S&P 500 1258.84 1242.87 12.89%
MSCI EAFE 1644.16 1629.47 4.01%
Russell 2000 790.59 776.56 26.42%

Consumer Money Rates

  Last 1-year ago
Prime Rate 3.25 3.25
Fed Funds 0.25 0.25
30-year mortgage 4.96 5.2

Currencies

  Last 1-year ago
Dollars per British Pound 1.537 1.598
Dollars per Euro 1.309 1.428
Japanese Yen per Dollar 83.580 91.700
Canadian Dollars per Dollar 1.014 1.056
Mexican Peso per Dollar 12.314 12.881

Commodities

  Last 1-year ago
Crude Oil 89.83 73.75
Gold 1387.33 1084.80

Bond Rates

  Last 1-month ago
2-year treasury 0.66 0.51
10-year treasury 3.39 2.86
10-year municipal (TEY) 5.28 4.83

Treasury Yield Curve – 12/23/2010 

 Treasury Yield Curve – 12/23/2010

S&P Sector Performance (YTD) – 12/23/2010 

 S&P Sector Performance (YTD) – 12/23/2010Economic Calendar

December 28th  —  Consumer Confidence (December)
December 30th  —  Jobless Claims (week ending December 25th)
Chicago Purchasing Managers Index (December)
Pending Home Sales (November)
January 3rd  —  ISM Manufacturing Index (December)
January 4th  —  FOMC Meeting Minutes (December 14th)
Unit Auto Sales (December)
January 5th  —  ISM Non-Manufacturing Index (December)
January 7th  —  Employment Report (December)
January 14th  —  Consumer Price Index (December)
Retail Sales (December)
Industrial Production (December)
January 17th  —  Martin Luther King, Jr. Holiday (markets closed)
January 25th/26th  —  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 December 22nd, 2010.

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


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