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The Weekly Market Snapshot from Frazier Allen

 

Weekly Market Snapshot

Market Commentary by Scott J. Brown, Ph.D., Chief Economist

Scott J. Brown Ph.D., Chief Economist Raymond James Investment Services

Scott J. Brown Ph.D., Chief Economist Raymond James Investment Services

The July figures on new and existing home sales each fell well short of expectations, and durable goods orders came in much weaker than anticipated. Real gross domestic product (GDP) rose at a 1.6% annual rate in the second estimate for second quarter of 2010 (compared to +2.4% in the advance estimate and a median forecast of +1.4%).

Growth in the second quarter was stronger than it appears, however. Imports, which have a negative sign in the GDP calculation, surged at a 32.4% annual rate, subtracting 4.5 percentage points from overall growth. Domestic Final Sales (GDP less inventories and net exports) – a better measure of underlying domestic demand – rose at a 4.3% annual rate (vs. +4.1% in the advance estimate). That indicates relative strength. But so what? The GDP revisions tell us nothing about the current pace of growth or where we’ll be in the next few quarters – and that is what matters for the overall financial market outlook.

In his highly-anticipated Jackson Hole, Wyoming, speech, Federal Reserve Chairman Ben Bernanke gave mixed messages. The Fed is prepared to undertake more quantitative easing – buying long-term securities – but does not yet see that the benefits of such a move would outweigh the potential costs. “If deflation risks were to increase,” Bernanke said, “the benefit-cost tradeoffs of some of our policy tools could become significantly more favorable.” So, the Fed is armed and ready to fire (in terms of doing more), but the trigger point has not yet been reached. The economic data over the next few weeks will be important.

Next week, the economic data calendar remains packed. The focus will be on the August Employment Report. The Census Bureau reports that there were 116,000 fewer census workers in mid-August than there were in mid-July, which should push the overall payroll figure into negative territory again. Private-sector payrolls are likely to post a lackluster gain (probably from 20,000 to 50,000; we need about 135,000 or so to keep pace with the growth of the working-age population). The unemployment rate is likely to edge up, reflecting the extension of unemployment insurance benefits. Keep an eye on temp-help payrolls, a leading indicator of new hiring, which improved nicely from October through May, but petered out in June and July.

Indices

  Last Last Week YTD return %
DJIA 9985.81 10271.21 -4.24%
NASDAQ 2118.69 2178.95 -6.63%
S&P 500 1047.22 1075.63 -6.09%
MSCI EAFE 1420.64 1461.14 -10.13%
Russell 2000 599.76 610.96 -4.10%

Consumer Money Rates

  Last 1-year ago
Prime Rate 3.25 3.25
Fed Funds 0.25 0.25
30-year mortgage 4.50 5.29

Currencies

  Last 1-year ago
Dollars per British Pound 1.553 1.624
Dollars per Euro 1.270 1.424
Japanese Yen per Dollar 84.670 94.290
Canadian Dollars per Dollar 1.055 1.099
Mexican Peso per Dollar 12.988 13.168

Commodities

  Last 1-year ago
Crude Oil 73.36 71.43
Gold 1236.65 944.49

Bond Rates

  Last 1-month ago
2-year treasury 0.55 0.56
10-year treasury 2.62 2.92
10-year municipal (TEY) 3.82 4.29

Treasury Yield Curve – 8/27th/2010 

Treasury Yield Curve

Treasury Yield Curve

S&P Sector Performance (YTD) – 8/27th/2010 

S&P Sector Performance (YTD)

S&P Sector Performance (YTD)

Economic Calendar

August 30th  —  Personal Income and Spending(July)
August 31st  —  S&P/Case-Shiller Home Prices (June)
Chicago Purchasing Managers Index (August)
Consumer Confidence (August)
FOMC Minutes (August 10th)
September 1st  —  ISM Manufacturing Index(August)
Unit Auto Sales(August)
September 2nd  —  Jobless Claims (week ending August 28th)
Productivity (2Q10, revised)
Pending Home Sales (July)
September 3rd  —  Employment Report (August)
ISM Non-Manufacturing Index (August)
September 6th  —  Labor Day Holiday (markets closed)
September 8th  —  Fed Beige Book
September 21st  —  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 August 19th, 2010.

©2010 Raymond James Financial Services, Inc. member FINRA / SIPC.


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