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The Weekly Market Snapshot from Frazier Allen for the week of September 16th, 2012

 

Weekly Market Snapshot

Market Commentary by Scott J. Brown, Ph.D., Chief Economist

Scott J. Brown Ph.D., Chief Economist Raymond James Investment ServicesCiting concerns about the pace of improvement in the labor market, the Federal Open Market Committee extended its forward guidance and started a third round of large-scale asset purchases (what most people call “QE3″). The FOMC said economic conditions are expected to warrant exceptionally low levels of the federal funds rate target through mid-2015 (vs. “late 2014″ in the previous policy statement) and added that “a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.”

The Fed’s latest bond-buying program will be in mortgage-backed securities and, unlike the first two asset purchase programs, is open-ended ($40 billion per month). In his press briefing after the FOMC meeting, Chairman Bernanke emphasized that the Fed wanted to see “substantial” improvement in the labor market, but declined to assign specific numbers to that. Bernanke also said that the Fed cannot do everything (including offsetting the negative impact of the fiscal cliff, should that occur), but is obliged to do what it can to support growth.

Retail sales were roughly in line with expectations in August, with strength centered in autos, building materials, and gasoline (weak otherwise). Industrial production slumped more than anticipated, partly due to the impact of Hurricane Isaac, but it was still a poor report excluding the weather effect. The Consumer Price Index was boosted by higher gasoline prices in August, no surprise, but measures of core inflation continued to slow (providing the Fed with more room to act).

The stock market and commodities rallied on the Fed news. However, Treasuries and the dollar weakened. Some of that was due to expectations that the new asset purchase program would include Treasuries (it didn’t). However, there was also some concern that the Fed was signaling that it would tolerate higher inflation (it didn’t). The stock market was also supported (on Wednesday) by the German Constitutional Courts approval of the European Stability Mechanism.

Next week, the calendar thins out, with a concentration of housing data. With the Fed’s emphasis on the labor market, other economic reports are likely to be weighted less in the near term. The monthly employment reports will be even more important than usual in the months ahead.

Indices

  Last Last Week YTD return %
DJIA 13539.86 13292.00 10.82%
NASDAQ 3155.83 3135.81 21.14%
S&P 500 1459.99 1432.12 16.09%
MSCI EAFE 1531.29 1484.75 8.41%
Russell 2000 856.12 837.95 15.55%

Consumer Money Rates

  Last 1-year ago
Prime Rate 3.25 3.25
Fed Funds 0.15 0.13
30-year mortgage 3.58 4.37

Currencies

  Last 1-year ago
Dollars per British Pound 1.611 1.582
Dollars per Euro 1.291 1.371
Japanese Yen per Dollar 77.610 76.870
Canadian Dollars per Dollar 0.973 0.990
Mexican Peso per Dollar 12.920 12.902

Commodities

  Last 1-year ago
Crude Oil 98.31 90.21
Gold 1752.95 1828.88

Bond Rates

  Last 1-month ago
2-year treasury 0.23 0.29
10-year treasury 1.54 1.72
10-year municipal (TEY) 2.83 3.15

Treasury Yield Curve – 9/14/2012

Treasury Yield Curve – 9/14/2012

S&P Sector Performance (YTD) – 9/14/2012

S&P Sector Performance (YTD) – 9/14/2012

Economic Calendar

September 17th

 —

September 18th

 —

Homebuilder Sentiment (September)
September 19th

 —

Building Permits, Housing Starts (August)
Existing Home Sales (August)
September 20th

 —

Jobless Claims (week ending September 15)
Markit Manufacturing PMI (September, flash)
Philadelphia Fed Index (September)
Leading Economic Indicators (August)
September 25th

 —

Consumer Confidence (September)
September 27th

 —

Durable Goods Orders (August)
October 3rd

 —

First Presidential Debate
October 5th

 —

Employment Report (September)

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 13th, 2012.

©2012 Raymond James Financial Services, Inc. member FINRA / SIPC.


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