Market Commentary by Scott J. Brown, Ph.D., Chief Economist
The economic data were mixed. Personal income and spending figures shower a sharp small decline in inflation-adjusted consumer spending in both April and May. The trend suggests an annual rate of growth of less than 1% in Q2 2011 in consumer spending, which accounts for 70% of Gross Domestic Product. Consumer confidence fell in June. Weekly jobless claims remained moderately high. The ISM Manufacturing Index rebounded partly in June, but the details were mixed.
The stock market picked among the economic news, ignoring the poor economic data and embracing the favorable reports. Progress on an austerity package in Greece reduced near-term worries about the European sovereign debt situation, helping to fuel stock market gains. Bond prices fell, pushing the 10-year Treasury note yield back above 3.20% (after dipping below 2.90% on Monday).
Next week, the focus will be on the labor market. We could see some market reaction to any surprises in the ADP payroll estimate, but the market will place a lot more weight on Friday’s figures. Nonfarm payrolls are expected to post a subpar increase in June (the early consensus is around +80,000, with another sharp decline in state and local government payrolls). After this week’s rebound from excessive pessimism, the stock market may struggle to continue the upward trend. Concerns about the two parties coming together to raise the debt ceiling could be a factor for the markets, but we should see an agreement within the next few weeks – to do otherwise, and risk a U.S. default, would be madness.
Indices
 | Last | Last Week | YTD return % |
DJIA | 12414.34 | 12050.00 | 7.23% |
NASDAQ | 2773.52 | 2686.75 | 4.55% |
S&P 500 | 1320.64 | 1283.50 | 5.01% |
MSCI EAFE | 1708.08 | 1628.03 | 3.00% |
Russell 2000 | 827.43 | 802.68 | 5.59% |
Consumer Money Rates
 | Last | 1-year ago |
Prime Rate | 3.25 | 3.25 |
Fed Funds | 0.10 | 0.20 |
30-year mortgage | 4.57 | 4.68 |
Currencies
 | Last | 1-year ago |
Dollars per British Pound | 1.607 | 1.496 |
Dollars per Euro | 1.451 | 1.226 |
Japanese Yen per Dollar | 80.560 | 88.580 |
Canadian Dollars per Dollar | 0.964 | 1.062 |
Mexican Peso per Dollar | 11.714 | 12.866 |
Commodities
 | Last | 1-year ago |
Crude Oil | 95.42 | 75.63 |
Gold | 1504.32 | 1241.65 |
Bond Rates
 | Last | 1-month ago |
2-year treasury | 0.45 | 0.35 |
10-year treasury | 3.14 | 2.92 |
10-year municipal (TEY) | 4.25 | 4.01 |
Treasury Yield Curve – 7/01/2011
S&P Sector Performance (YTD) – 7/01/2011
Economic Calendar
July 4th |  — | Independence Day (markets closed) |
July 5th |  — | Factory Orders (May) |
July 6th |  — | Challenger Layoff Report (June) ADP Payroll Estimate (June) ISM Non-Manufacturing Index (June) |
July 7th |  — | Jobless Claims (week ending July 2nd) |
July 8th |  — | Employment Report (June) |
July 13th |  — | Bernanke Monetary Policy Testimony |
July 14th |  — | Producer Price Index (June) Retail Sales (June) |
July 15th |  — | Consumer Price Index (June) Industrial Production (June) |
July 29th |  — | Real GDP (2Q11 advance estimate) |
August 9th |  — | FOMC Meeting (no 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 June 30th, 2011.
©2011 Raymond James Financial Services, Inc. member FINRA / SIPC.