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Market Commentary by Scott J. Brown, Ph.D., Chief Economist
The week began with a speech by Fed Chairman Bernanke, where he noted that “further significant improvements in the unemployment rate will likely require a more-rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies.”Many interpreted this to mean that further asset purchases (QE3) were still on the table (if somewhat unlikely). Concerns about softer global growth seemed to weigh against equity market sentiment through the middle of the week. Quarter-end likely window-dressing added a bit to market volatility. Bond yields fell.
The economic data reports were mixed. The personal income and spending figures were probably the most important, but were not fully appreciated by the markets.
A month ago, inflation-adjusted consumer spending (roughly 70% of Gross Domestic Product) was reported flat in November, December, and January – suggesting an unexpectedly soft first quarter. However, inflation-adjusted spending was reported to have risen 0.5% in February, and December and January figures were revised higher. As a result, consumer spending appears to be on a 2.0% to 2.5% track (annual rate) in 1Q12, vs. the 1.0% to 2.0% pace seen a month ago. Economists are expected to revise their first quarter GDP growth forecasts higher.
Next week, key labor market data will arrive at the end of the week. The stock market will be closed for the Good Friday holiday, but the bond market will be open half the day. An unusually mild winter boosted payroll figures for January and February. There may be some payback (a somewhat slower rate of job growth) in March and April. However, the trend is expected to remain strong. While weather has certainly played a roll, easier bank credit to consumers and small businesses has been an important factor fueling the expansion. Higher gasoline prices are a threat, but the impact depends on the magnitude and duration of the increase (and the impact usually arrives with a lag).
Consumer Money Rates
Treasury Yield Curve – 3/30/2012
S&P Sector Performance (YTD) – 3/30/2012
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.
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 March 29th, 2012.
TopicsCapacity Utilization, Consumer Price Index, Economic Data, European Debt, Federal Open Market Committee, Financial Markets, Frazier Allen, Global Equity Markets, Gross Domestic Product, Index of Leading Economic Indicators, Manufacturing Output, Raymond James, Raymond James Investment Services, Scott J. Brown, Seasonal Adjustment, Short-Term Interest Rates, Volatility, Weekly Market Snapshot
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