Market Commentary by Scott J. Brown, Ph.D., Chief Economist
The economic data were mixed, but generally better than expected. Home prices continued to advance. Consumer confidence improved. The estimate of first quarter GDP growth was revised lower (a 2.4% annual rate, vs. +2.5% in the advance estimate), but consumer spending and business fixed investment were both revised a bit higher. Personal income was flat in April (the Employment Report had shown a decrease in hours offsetting the impact of more jobs).
Personal spending fell 0.2%, partly reflecting lower gasoline prices and more normal temperatures (lower household energy consumption). Ex-energy, spending would have risen about 0.3%. Inflation-adjusted consumer spending (70% of GDP) edged up 0.1% – it’s only one month (and subject to revision), but spending appears to be on track for about a 2% annual rate in 2Q13 (vs. +3.4% in 1Q13).
Fed policymakers are widely expected to begin tapering the rate of asset purchases at the September policy meeting (although that will depend on the economic data). Recall that it is total amount of securities purchased that matters, not the pace. There was no significant increase in long-term interest rates after QE1 and QE2 ended. The recent increase in long-term interest rates appears to be due more to growing expectations of a second half pickup in economic activity. However, long-term interest rates should not rise so fast that they jeopardize the recovery (so expect a little back-and-forth).Next week, the ISM Manufacturing Index may set the tone for the early part of the week, but Friday’s job market figures will carry the most weight. Payrolls are likely to post a moderately strong gain, while the unemployment rate is likely to hold steady (at 7.5%). The Fed wants to see “substantial improvement” in the job market before tapering its asset purchases – and we’re not there yet. Note that Fed officials are looking at a variety of labor market data, not just payrolls and the unemployment rate.
Indices
Last | Last Week | YTD return % | |
DJIA | 15324.53 | 15294.5 | 16.94% |
NASDAQ | 3491.30 | 3459.417 | 15.62% |
S&P 500 | 1654.41 | 1650.51 | 16.00% |
MSCI EAFE | 1723.19 | 1734.35 | 7.43% |
Russell 2000 | 994.43 | 984.28 | 17.08% |
Consumer Money Rates
Last | 1-year ago | |
Prime Rate | 3.25 | 3.25 |
Fed Funds | 0.08 | 0.17 |
30-year mortgage | 3.81 | 3.75 |
Currencies
Last | 1-year ago | |
Dollars per British Pound | 1.521 | 1.552 |
Dollars per Euro | 1.305 | 1.241 |
Japanese Yen per Dollar | 100.900 | 78.980 |
Canadian Dollars per Dollar | 1.031 | 1.028 |
Mexican Peso per Dollar | 12.823 | 14.075 |
Commodities
Last | 1-year ago | |
Crude Oil | 93.61 | 87.82 |
Gold | 1413.37 | 1564.75 |
Bond Rates
Last | 1-month ago | |
2-year treasury | 0.30 | 0.21 |
10-year treasury | 2.16 | 1.72 |
10-year municipal (TEY) | 3.29 | 2.95 |
Treasury Yield Curve – 05/31/2013
S&P Sector Performance (YTD) – 05/31/2013
Economic Calendar
June 3rd |
— |
ISM Manufacturing Index (May) Motor Vehicle Sales (May) |
June 4th |
— |
Trade Balance (April) |
June 5th |
— |
ADP Payroll Estimate (May) ISM Non-Manufacturing Index (May) Fed Beige Book |
June 6th |
— |
Jobless Claims (week ending June 1st) |
June 7th |
— |
Employment Report (May) |
June 13th |
— |
Retail Sales (May) |
June 14th |
— |
Industrial Production (May) |
June 19th |
— |
FOMC Policy Decision, Bernanke Press Briefing |
July 4th |
— |
Independence Day Holiday (markets closed) |
July 31st |
— |
Real GDP (advance 2Q13 + comprehensive revisions) FOMC Policy Decision (no press briefing) |
Important Disclosures
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 May 31st, 2013.
©2013 Raymond James Financial Services, Inc. member FINRA / SIPC.