Clarksville Weekly Market Snapshot from Frazier Allen for the week of December 11th, 2016

Clarksville, TN – Italy voted “no” on its constitutional referendum and Prime Minister Renzi resigned. South Korea’s president was impeached. The European Central Bank extended its asset purchase program to the end of 2017, but will reduce the monthly pace of purchases in April.

None of that disturbed U.S. equity market investors who continued to enjoy the Trump sizzle. After showing some signs of stability, bond yields again moved higher.

The trade deficit widened in October, reflecting a pullback in agricultural exports, which had surged in 3Q16 (adding about a full percentage point to the headline GDP growth estimate).

Next week, there is a lot of economic data, but the focus will be on the Fed. The Federal Open Market Committee is widely expected to raise the federal funds target range to 0.50-0.75% (from 0.25-0.50%), while the board of governors should approve an increase in the primary credit rate (often still called the discount rate) to 1.25% (from 1%).

Officials are expected to indicate that, while future policy moves will remain data-dependent, rate increases are likely to be gradual. Quarter after quarter, the dots in the dot plot (senior Fed officials’ projections of the appropriate year-end federal funds target rate) have drifted lower.

However, that pattern may end, as the dots are likely to be little change relative to the September plot. In her post-meeting press conference, Chair Yellen is expected to be asked about the Fed’s likely response to fiscal stimulus from the new administration and Congress (she recently testified that the Fed will not try to anticipate, but will react to how any spending and tax changes will influence the economic outlook).

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 December 8th, 2016.

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