Market Commentary by Scott J. Brown, Ph.D., Chief Economist for Raymond James Investment Services
Worries about Europe’s debt crisis remained the dominant factor in U.S. financial markets, pushing the major equity market averages down. However, a flight to safety has pushed long-term Treasury yields lower (which is helpful for the recovery here). The 10-year Treasury note yield slipped below 3.2% – which is remarkable since it flirted with 4.0% a little over a month ago. The European crisis seems unlikely to go away anytime soon. Fear and uncertainty are negatives for the stock market and the economy.
The U.S. economic data were consistent with a moderate pace of economic growth, although there were a few disappointments, which would have been minor in normal circumstances. Their effects were likely exaggerated by the negative market mood. Jobless claims rose unexpectedly, casting some doubt on the pace of recovery in the job market (however, one week does not make a trend).
The Index of Leading Economic Indicators (LEI) fell 0.1% in April. As a rule of thumb, three consecutive monthly declines signal a pending recession, but that’s only a rule of thumb – the classic line is that the LEI predicted 12 of the last five recessions – and it’s only one month. Still, there are concerns that if enough firms fear a double-dip recession, and cut jobs and capital spending on that expectation, then a renewed economic decline could become self-fulfilling. Most likely, there’s enough positive momentum in consumer spending, jobs, and business investment to allow us to avoid a double dip, but the psychology of this will be important in the next few months.
Next week, there are a number of potentially market-moving economic data releases, but European debt worries are likely to continue to dominate. The estimate of gross domestic product (GDP) growth for the first quarter of 2010 is expected to be revised higher. There are high degrees of choppiness in many of this week’s economic reports (home sales, durable goods orders), which could add to market volatility.
Indices
| Last | Last Week | YTD return % | |
|---|---|---|---|
| DJIA | 10068.01 | 10782.95 | -3.45% |
| NASDAQ | 2204.01 | 2394.36 | -2.87% |
| S&P 500 | 1071.59 | 1157.44 | -3.90% |
| MSCI EAFE | 1351.69 | 1465.13 | -14.49% |
| Russell 2000 | 640.04 | 709.85 | 2.34% |
Consumer Money Rates
| Last | 1-year ago | |
|---|---|---|
| Prime Rate | 3.25 | 3.25 |
| Fed Funds | 0.25 | 0.25 |
| 30-year mortgage | 4.90 | 4.98 |
Currencies
| Last | 1-year ago | |
|---|---|---|
| Dollars per British Pound | 1.432 | 1.568 |
| Dollars per Euro | 1.234 | 1.376 |
| Japanese Yen per Dollar | 89.370 | 94.980 |
| Canadian Dollars per Dollar | 1.071 | 1.144 |
| Mexican Peso per Dollar | 13.178 | 12.929 |
Commodities
| Last | 1-year ago | |
|---|---|---|
| Crude Oil | 68.01 | 61.44 |
| Gold | 1182.95 | 935.84 |
Bond Rates
| Last | 1-month ago | |
|---|---|---|
| 2-year treasury | 0.69 | 1.06 |
| 10-year treasury | 3.12 | 3.81 |
| 10-year municipal (TEY) | 4.75 | 5.00 |
Treasury Yield Curve – 5/21/2010
S&P Sector Performance Charts – 5/21/2010
Economic Calendar
| May 24 | — | Existing Home Sales (April) |
| May 25 | — | S&P/C-S Home Prices (March) Consumer Confidence (May) |
| May 26 | — | Durable Goods Orders (April) New Home Sales (April) |
| May 27 | — | Jobless Claims (week ending May 22) Real GDP (1Q10, 2nd estimate) |
| May 28 | — | Personal Income and Spending (April) Chicago Purchasing Managers Index (May) Consumer Sentiment (May) |
| May 31 | — | Memorial Day Holiday (markets closed) |
| June 22/23 | — | FOMC Meeting |
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 May 13th, 2010.
©2010 Raymond James Financial Services, Inc. member FINRA / SIPC.
