Market Commentary by Scott J. Brown, Ph.D., Chief Economist
The Federal Open Market Committee announced that it would extend the average maturity of its holdings of securities, buying $400 billion in 6- to 30-year Treasuries by the end of June 2012 and selling an equal amount of Treasuries with maturities of 3 years or less. The FOMC said that “this program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative.”
The FOMC also announced that, “to support conditions in mortgage markets,” it would reinvest principal payments for its holdings of agency debt (Fannie Mae, Freddie Mac) and mortgage-backed securities in mortgage-backed securities (instead of into Treasuries, as it had been doing currently). The FOMC noted that “there are significant downside risks to the economic outlook, including strains in global financial markets,” and said it expected inflation to settle at levels at or below what is consistent with its dual mandate. In its operating directive, the NY-Fed said that 29% of the purchases would be in the 20- to 30-year range, more than anticipated, pushing long-term interest rates down sharply.
The economic data were mixed and generally uneventful for the markets. In its World Economic Outlook, the IMF revised lower its projections for global growth this year and next. Flash estimates of purchasing managers indexes hinted at an economic contraction in Europe. Commodity prices fell across the board.
Next week, Europe is expected to remain a chief concerns for investors. It will be some time before we get much clarity (Europe’s problems are horrendous, but the resolve to overcome them is strong). The economic data are expected to be mixed (more important figures will arrive in the following week). Fed Governor Sarah Raskin will speak on monetary policy and jobs – we should get some good insight into what the Fed expects from Operation Twist.
Indices
| Last | Last Week | YTD return % | |
| DJIA | 10733.83 | 11433.18 | -7.29% |
| NASDAQ | 2455.67 | 2607.07 | -7.43% |
| S&P 500 | 1129.56 | 1209.11 | -10.18% |
| MSCI EAFE | 1331.35 | 1425.29 | -19.72% |
| Russell 2000 | 643.42 | 713.51 | -17.89% |
Consumer Money Rates
| Last | 1-year ago | |
| Prime Rate | 3.25 | 3.25 |
| Fed Funds | 0.10 | 0.20 |
| 30-year mortgage | 4.00 | 4.31 |
Currencies
| Last | 1-year ago | |
| Dollars per British Pound | 1.539 | 1.564 |
| Dollars per Euro | 1.350 | 1.337 |
| Japanese Yen per Dollar | 76.480 | 84.430 |
| Canadian Dollars per Dollar | 1.027 | 1.033 |
| Mexican Peso per Dollar | 13.815 | 12.700 |
Commodities
| Last | 1-year ago | |
| Crude Oil | 80.26 | 72.66 |
| Gold | 1747.23 | 1289.10 |
Bond Rates
| Last | 1-month ago | |
| 2-year treasury | 0.20 | 0.20 |
| 10-year treasury | 1.74 | 2.15 |
| 10-year municipal (TEY) | 3.09 | 3.37 |
Treasury Yield Curve – 9/23/2011
S&P Sector Performance (YTD) – 9/23/2011
Economic Calendar
| September 26th |
— |
Chicago Fed National Activity Index (August) Fed Governor Raskin Speaks (“monetary policy and jobs”) New Home Sales (August) |
| September 27th |
— |
S&P/Case-Shiller Home Prices (July) Consumer Confidence (September) |
| September 28th |
— |
Durable Goods Orders (August) |
| September 29th |
— |
Jobless Claims (week ending September 24th) Real GDP (2Q11, 3rd estimate) Pending Home Sales Index (August) |
| September 30th |
— |
Personal Income and Spending (August) Chicago Purchasing Managers Index (September) Consumer Sentiment (September) |
| October 3rd |
— |
ISM Manufacturing Index (September) |
| October 4th |
— |
Bernanke JEC Testimony |
| October 7th |
— |
Employment Report (September) |
| October 10th |
— |
Columbus Day (bond market closed) |
| November 2nd |
— |
FOMC Policy Decision (+Bernanke press briefing) |
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 22nd, 2011.
©2011 Raymond James Financial Services, Inc. member FINRA / SIPC.
