Weekly Market Snapshot from Frazier Allen for the week of June 25th, 2013

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

The Federal Open Market Committee left short-term interest rates unchanged, did not alter its forward guidance on the overnight lending rate, and said it would maintain its asset purchase program at $85 billion per month. The policy statement was a near photocopy of the previous one.

The FOMC indicated that recent inflation readings have been low due partly to “transitory influences.” The downside risks to the outlook for growth and the labor market had “diminished” since the fall. The FOMC repeated that it could “increase or reduce” the pace of asset purchases depending on how the outlook for the labor market or inflation changes.

In his press briefing, Fed Chairman Bernanke said that if the economy evolves as anticipated (growth picks up, unemployment falls, and inflation gradual moves back to the 2% target), then the FOMC would likely step down the pace of asset purchases later this year, and if the economy continues to improve, the asset program would likely come to an end in mid-2014 (as the unemployment rate falls to 7.0%).

However, Bernanke stressed (in his opening statement and a number of times in the Q&A) that policy will remain data-dependent.

Bernanke did not signal any change in monetary policy. Rather, his point was to outline clearly how the evolution of the economic outlook will drive policy decisions. Tapering is not tightening and an increase in short-term interest rates is still a long way off.

Bernanke used the analogy that, in reducing the rate of asset purchases, the Fed would be slightly taking the foot off the gas pedal. It won’t be hitting the brakes anytime soon. Nevertheless, stocks fell sharply and bond yields surged. It’s not clear whether the markets simply misinterpreted the Fed Chairman’s statements or were badly mispriced to begin with.

Next week, there are a number of potentially market-moving data releases. It may take some time for the markets to properly digest what Bernanke said.

Indices

Consumer Money Rates

Currencies

Commodities

Bond Rates

Treasury Yield Curve – 06/21/2013

S&P Sector Performance (YTD) – 06/21/2013

Economic Calendar

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.

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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.

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