Clarksville, TN – In recent weeks, the U.S. stock market has reacted negatively to bad economic news out of Japan, China, and the euro area and positively to efforts by the corresponding central banks to spur growth. The European Central Bank did not make that extra effort on Thursday.
After strong hints that quantitative easing is on the way, the ECB’s Governing Council disappointed by failing to launch QE. ECB President Draghi indicated that further extraordinary measures could be employed “if needed.” The ECB staff and euro systems have stepped up technical preparations for QE, but Draghi seemed to suggest that there is no haste toward QE.
The vote (to not implement QE) was not unanimous, which suggests that Draghi does not have the votes – and may not get the votes – for QE.The November Employment Report was a lot stronger than expected. Nonfarm payrolls were reported to have risen by 321,000, with a net upward revision to September and October of +44,000. One should take that with a grain of salt (figures are subject to revision, the payroll figure is reported accurate to 90,000, seasonal adjustment can be quirky, and weather effects can distort), but it is encouraging.
The unemployment rate held steady at 5.8%, with no change in labor force participation or in the employment/population ratio. Average hourly earnings rose 0.4%, up 2.1% y/y (note that the monthly figures are often revised and the trend is relatively lackluster). Strong job growth is good news, but might be interpreted as pulling forward the date of the Fed’s first increase in short-term interest rates.
Next week, the economic calendar thins, with Thursday’s retail sales report being the only important release for the markets. Unit auto sales picked up sharply in November, which should boost the total retail sales figure. Lower gasoline prices will subtract. Seasonal adjustment is a bit tricky as the holiday shopping season gets underway.
While Black Friday sales were disappointing, that may reflect retailer efforts to pull sales forward ahead of the short period between Thanksgiving and Christmas.
However, it could reflect the weak trend in average earnings. Lower gasoline prices will help to boost consumer spending in the near term, but the lackluster growth in average wages, a sign of slack in the labor market, is a restraint
Indices
Last | Last Week | YTD return % | |
DJIA | 17912.62 | 17827.75 | 8.06% |
NASDAQ | 4774.47 | 4787.317 | 14.32% |
S&P 500 | 2074.33 | 2072.83 | 12.23% |
MSCI EAFE | 1831.41 | 1848.79 | -4.39% |
Russell 2000 | 1179.01 | 1190.62 | 1.32% |
Consumer Money Rates
Last | 1 year ago | |
Prime Rate | 3.25 | 3.25 |
Fed Funds | 0.12 | 0.07 |
30-year mortgage | 3.92 | 4.46 |
Currencies
Last | 1 year ago | |
Dollars per British Pound | 1.567 | 1.641 |
Dollars per Euro | 1.233 | 1.357 |
Japanese Yen per Dollar | 119.370 | 102.810 |
Canadian Dollars per Dollar | 1.138 | 1.066 |
Mexican Peso per Dollar | 14.119 | 13.232 |
Commodities
Last | 1 year ago | |
Crude Oil | 67.38 | 96.04 |
Gold | 1204.36 | 1220.39 |
Bond Rates
Last | 1 month ago | |
2-year treasury | 0.63 | 0.51 |
10-year treasury | 2.31 | 2.35 |
10-year municipal (TEY) | 3.28 | 3.36 |
Treasury Yield Curve – 12/05/2014
S&P Sector Performance (YTD) – 12/05/2014
Economic Calendar
December 9th | — | Small Business Optimism Index (November) |
December 11th | — | Retail Sales (November) |
December 12th | — | Producer Price Index (November) |
December 15th | — | Industrial Production (November) |
December 16th | — | Building Permits, Housing Starts (November) |
December 17th | — | Consumer Price Index (November) FOMC Policy Decision (Yellen Press Conference) Revised Fed Projections |
January 9th | — | Employment Report (December) |
January 22nd | — | ECB Policy Meeting |
January 28th | — | FOMC Policy Decision (no press conference) |
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 December 4th, 2014.
©2014 Raymond James Financial Services, Inc. member FINRA / SIPC.