Market Commentary by Scott J. Brown, Ph.D., Chief Economist
The economic data were mixed, but mostly on the soft side of expectations. Durable goods orders fell 3.8% in April, reflecting supply-chain disruptions from Japan and a pullback in civilian aircraft orders (which tend to be erratic). Ex-transportation, orders fell 1.5%, but that followed a 2.5% gain in March. New home sales rose 7.3% in April, but it’s not hard to get a large percentage increase when the level is so low (note: the April change was not statistically significant from zero). The Pending Home Sales Index, which measures signed contracts, sank 11.6% in April – not good, and consistent with other signs of a disappointing spring season in housing. Consumer sentiment improved. Jobless claims were higher than anticipated.
Real GDP growth rose at a 1.8% annual rate in the 2nd estimate for 1Q11, the same as in the advance estimate (vs. a median forecast of +2.1%). Consumer spending was unexpectedly revised down to a 2.2% annual rate (vs. +2.7% in the advance estimate and +4.0% in 4Q10).
Defense spending, which can be erratic from quarter to quarter, fell at an 11.7% pace, subtracting 0.7 percentage point from overall GDP growth, and a 3.2% decline in state and local government subtracted 0.4 percentage point. Adjusting for inflation, disposable income rose just 0.1% from December to April – as the negative impact of higher gasoline prices offset the positive impact of aggregate wage income gains and this year’s drop in payroll taxes. Real consumer spending (70% of GDP) rose a lackluster 0.1% in April, following a similar gain in March – on track for an annual rate of 2% or less in 2Q10.
Next week, fresh May figures arrive. The consumer confidence index and the ISM manufacturing data have some market-moving potential, but the focus will be on Friday’s job market report. Nonfarm payrolls are likely to post a more moderate gain in May (median forecast: about +195,000), reflecting somewhat slower gains in private-sector payrolls (median forecast: +220,000, vs. +268,000 in April) and another decline in state and local government.
Indices
| Â | Last | Last Week | YTD return % |
| DJIA | 12402.76 | 12605.32 | 7.13% |
| NASDAQ | 2782.92 | 2823.31 | 4.90% |
| S&P 500 | 1325.69 | 1343.60 | 5.41% |
| MSCI EAFE | 1684.84 | 1713.75 | 1.60% |
| Russell 2000 | 830.87 | 835.16 | 6.03% |
Consumer Money Rates
| Â | Last | 1-year ago |
| Prime Rate | 3.25 | 3.25 |
| Fed Funds | 0.10 | 0.22 |
| 30-year mortgage | 4.54 | 4.86 |
Currencies
| Â | Last | 1-year ago |
| Dollars per British Pound | 1.638 | 1.443 |
| Dollars per Euro | 1.413 | 1.223 |
| Japanese Yen per Dollar | 81.370 | 90.230 |
| Canadian Dollars per Dollar | 0.980 | 1.063 |
| Mexican Peso per Dollar | 11.691 | 13.013 |
Commodities
| Â | Last | 1-year ago |
| Crude Oil | 100.23 | 71.51 |
| Gold | 1522.93 | 1213.60 |
Bond Rates
| Â | Last | 1-month ago |
| 2-year treasury | 0.49 | 0.63 |
| 10-year treasury | 3.08 | 3.32 |
| 10-year municipal (TEY) | 4.04 | 4.42 |
Treasury Yield Curve – 5/27/2011Â
S&P Sector Performance (YTD) – 5/27/2011Â
Economic Calendar
| May 30th |  — | Memorial Day Holiday (markets closed) |
| May 31st |  — | S&P/Case-Shiller Home Price Index (April) Chicago PM Index (May) Consumer Confidence (May) |
| June 1st |  — | Challenger Layoffs (May) ADP Payroll Estimate (May) Construction Spending (April) ISM Manufacturing Index (May) Motor Vehicle Sales (May) |
| June 2nd |  — | Jobless Claims (week ending May 28th) Productivity (1Q11, revised) |
| June 3rd |  — | Employment Report (May) ISM Non-Manufacturing Index (May) |
| June 8th |  — | Fed Beige Book |
| June 9th |  — | Trade Balance (April) |
| June 14th |  — | Retail Sales (May) |
| June 15th |  — | Consumer Price Index (May) |
| June 21st-22nd |  — | FOMC Meeting Bernanke Press Conference |
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 May 26th, 2011.
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