Market Commentary by Scott J. Brown, Ph.D., Chief Economist
The data remained consistent with moderate economic growth in the near term. Industrial production rose 0.4% in December, but was held back by a 2.7% decline in the output of utilities (a function of moderate temperatures) – manufacturing output rose 0.9%, partly reflecting a rebound from a soft November. Residential construction figures were mixed, with an improving trend in single-family housing starts and building permits, but softness in the multi-family sector (which is volatile).
Note that seasonal adjustment may have exaggerated the impact of mild weather. The Consumer Price Index was unchanged for a second consecutive month in December, up 3.0% year-over-year (vs. +1.5% in 2010). Ex-food & energy, the CPI rose 0.1%, up 2.2% in 2011 (vs. a historic low of +0.8% in 2010).
Next week, the focus is expected to be on the Fed policy statement and Chairman Bernanke’s press briefing. However, Friday’s GDP estimate has some market-moving potential. The Fed is expected to leave monetary policy unchanged. A number of Fed officials have spoken in recent months about the possibility of another round of asset purchases, which would be made more effective by enhanced communications from the Fed. We’re about to get such enhancements. In addition to releasing the four-times-per-year projections of GDP growth, unemployment, and inflation, the Fed will begin publishing its forecasts of the federal funds rate target.
There’s always a lot of uncertainty in the advance GDP estimate. Investors should focus on the key components (consumer spending and business fixed investment) and the story behind those components. However, market participants rarely look behind the headline figure, which will be revised in February, and again in March, and again in July when annual benchmark revisions are incorporated. GDP growth is expected to have been moderately strong in 4Q11 (somewhere between 2.5% and 3.5%).
Indices
 | Last | Last Week | YTD return % |
DJIA | 12623.98 | 12471.02 | 3.33% |
NASDAQ | 2788.33 | 2724.70 | 7.03% |
S&P 500 | 1314.50 | 1295.50 | 4.52% |
MSCI EAFE | 1464.78 | 1423.02 | 3.70% |
Russell 2000 | 782.37 | 770.49 | 5.59% |
Consumer Money Rates
 | Last | 1-year ago |
Prime Rate | 3.25 | 3.25 |
Fed Funds | 0.08 | 0.10 |
30-year mortgage | 3.92 | 4.78 |
Currencies
 | Last | 1-year ago |
Dollars per British Pound | 1.547 | 1.599 |
Dollars per Euro | 1.293 | 1.348 |
Japanese Yen per Dollar | 77.230 | 81.920 |
Canadian Dollars per Dollar | 1.011 | 0.996 |
Mexican Peso per Dollar | 13.246 | 12.085 |
Commodities
 | Last | 1-year ago |
Crude Oil | 100.39 | 90.86 |
Gold | 1652.80 | 1370.85 |
Bond Rates
 | Last | 1-month ago |
2-year treasury | 0.23 | 0.28 |
10-year treasury | 1.98 | 2.00 |
10-year municipal (TEY) | 2.70 | 2.90 |
Treasury Yield Curve – 1/20/2012
S&P Sector Performance (YTD) – 1/20/2012
Economic Calendar
January 24h |
 — |
State of the Union Address |
January 25th |
 — |
FOMC Policy Meeting Bernanke Press Briefing |
January 26th |
 — |
Jobless Claims (week ending January 21st) Durable Goods Orders (December) New Home Sales (December) Leading Economic Indicators |
January 27th |
 — |
Real GDP (4Q11, advance estimate Consumer Sentiment (January) |
January 31st |
 — |
Consumer Confidence (January) |
February 1st |
 — |
ISM Manufacturing Index (January) |
February 3rd |
 — |
Employment Report (January) |
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 19th, 2012.
©2012 Raymond James Financial Services, Inc. member FINRA / SIPC.