Market Commentary by Scott J. Brown, Ph.D., Chief Economist for Raymond James Investment Services
The economic data were mixed, but generally consistent with a moderate economic recovery. Residential construction figures fell sharply in May, reflecting the impact of the expiration of the homebuyer tax credit on April 30. Industrial production continued to advance in May, boosted partly by higher utility output – a function of unseasonably warm weather. Manufacturing output rose 0.9%. Capacity utilization continued to rise, but remains well below the average level of the last several years (and far below levels that might be considered “inflationary”).
The Consumer Price Index (CPI) fell 0.2% in May (+2.0% year-over-year – but unchanged relative to December 2009), held down by flat food prices and a drop in energy, which was largely due to the seasonal adjustment. Ex-food and energy, the CPI edged up 0.1% in May, which put it up 0.9% year-over-year. Weekly jobless claims remained stubbornly high.
U.S. financial markets have struggled with the economic outlook recently. Long-term interest rates fell in May, due partly to a flight to safety following concerns about European debt. However, worries about the strength of the U.S. economic recovery were also a factor. Recent data suggest that the recovery is advancing, but at a somewhat slower pace than was expected a couple of months ago – not enough to put much of a dent in the unemployment rate.
Next week, the focus will be on the Fed policy announcement. The Federal Open Market Committee (FOMC) is widely expected to leave short-term interest rates unchanged on Wednesday, and it should repeat the expectation that economic conditions are likely to warrant exceptionally low levels of the overnight lending rate “for an extended period.” There may be some tweaking of the wording of the economic outlook. Home sales figures are likely to be mixed in May, but recent anecdotal information suggest a sharp drop in housing activity (which should show up in the June numbers).
Indices
| Last | Last Week | YTD return % | |
|---|---|---|---|
| DJIA | 10434.17 | 10172.53 | 0.06% |
| NASDAQ | 2307.16 | 2218.71 | 1.68% |
| S&P 500 | 1116.04 | 1086.84 | 0.08% |
| MSCI EAFE | 1414.82 | 1354.77 | -10.50% |
| Russell 2000 | 665.85 | 639.79 | 6.47% |
Consumer Money Rates
| Last | 1-year ago | |
|---|---|---|
| Prime Rate | 3.25 | 3.25 |
| Fed Funds | 0.25 | 0.25 |
| 30-year mortgage | 4.80 | 5.41 |
Currencies
| Last | 1-year ago | |
|---|---|---|
| Dollars per British Pound | 1.480 | 1.631 |
| Dollars per Euro | 1.235 | 1.387 |
| Japanese Yen per Dollar | 90.790 | 95.720 |
| Canadian Dollars per Dollar | 1.029 | 1.135 |
| Mexican Peso per Dollar | 12.604 | 13.413 |
Commodities
| Last | 1-year ago | |
|---|---|---|
| Crude Oil | 76.79 | 71.03 |
| Gold | 1248.57 | 936.16 |
Bond Rates
| Last | 1-month ago | |
|---|---|---|
| 2-year treasury | 0.71 | 0.69 |
| 10-year treasury | 3.21 | 3.12 |
| 10-year municipal (TEY) | 4.97 | 4.82 |
Treasury Yield Curve – 6/18/2010
S&P Sector Performance Charts – 6/18/2010
Economic Calendar
| June 22 | — | Existing Home Sales (May) FOMC Policy Meeting Begins |
| June 23 | — | New Home Sales (May) FOMC Policy Decision |
| June 24 | — | Jobless Claims (week ending June 19) Durable Goods Orders (May) |
| June 29 | — | Consumer Confidence (June) |
| July 1 | — | ISM Manufacturing Index (June) |
| July 2 | — | Employment Report (June) |
| July 5 | — | Independence Day Holiday (markets closed) |
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 June 10th, 2010.
©2010 Raymond James Financial Services, Inc. member FINRA / SIPC.
