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Clarksville, TN – Fed tapering concerns continued to dominate the stock market action. The minutes of the July 30th-31st Federal Open Market Committee meeting provided little clarification.
Officials noted that the unemployment rate had fallen “considerably” since last fall (when QE3 began), with “solid” gains in nonfarm payrolls in recent months, but other measures of labor force utilization suggested “more modest” improvement.
From the minutes: “A few members emphasized the importance of being patient and evaluating additional information on the economy before deciding on any changes to the pace of asset purchases. At the same time, a few others pointed to the contingent plan that had been articulated on behalf of the Committee the previous month, and suggested that it might soon be time to slow somewhat the pace of purchases as outlined in that plan.”A key paper presented at the Fed’s annual monetary policy symposium in Jackson Hole concluded that it was “imperative” that central banks outline a framework for the use of large-scale asset purchases: “without such a framework, investors do not know the conditions under which asset purchases will occur or will be unwound, which undercut the efficacy of policy targeted at long-term asset values.” Amen to that.
With no clear guidance from the Fed, investors looked to the economic data for signs of whether tapering should be delayed. No clear results here either. Existing home sales rose in July, while new home sales tanked. Jobless claims remained low. The Index of Leading Economic Indicators was consistent with moderate growth.
Next week, data reports will have some potential to move the markets, as investors try to pile up arguments for and against a delay in Fed tapering. A sharp drop in aircraft orders (following strength in May and June) should drive the headline durable goods figure sharply lower.
Consumer Confidence is likely to be little changed (note that while perceptions of current jobs available have grown less depressed, they are a long way from normal). The Pending Home Sales Index may provide some indication of whether higher mortgage rates are dampening the housing recovery (and in turn, overall economic growth).
The estimate of 2Q13 GDP growth is expected to be revised somewhat higher (reflecting a smaller-than-expected trade deficit). Financial market activity may thin out ahead of the three-day weekend. Investors will return from the Labor Day holiday with a clear focus on the August Employment Report, which is expected to play a key role in the Fed’s September 18 policy decision.
Consumer Money Rates
Treasury Yield Curve – 08/23/2013
S&P Sector Performance (YTD) – 08/23/2013
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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 August 15th, 2013.
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