Market Commentary by Scott J. Brown, Ph.D., Chief Economist
Most of the economic data reports were better than expected. The ISM surveys were strong, reflecting solid growth in new orders and employment, albeit with a further increase in input price pressures. The January Employment Report was confusing. Nonfarm payrolls rose by a disappointing 36,000 (median forecast was about +145,000) and average weekly hours edged down, but that likely reflected the impact of poor weather. Manufacturing payrolls rose by 49,000 and factory hours advanced, consistent with the inventory story that came out of the 4Q10 GDP report (that is, lean inventories suggest gains in production in the near term).
The unemployment rate fell unexpectedly to 9.0%, but not all of the drop could be explained by a drop in labor force participation. The employment-to-population ratio, a better measure of slack in the labor market, edged only slightly higher (suggesting improvement, but not as much as the drop in the unemployment rate would seem to suggest). In his speech to the National Press Club, Fed Chairman Bernanke was optimistic that the pace of the economic recovery would improve, but cautioned that it would be years before the job market returned to normal.
The markets were bewildered by the January job market data. While weather and seasonal adjustment added to the uncertainty of the data, the report was consistent with an improving economic outlook. Other information has signaled a very low rate of job destruction and suggests that new hiring may be starting to pick up. The bond market seemed to figure it out, sending bond yields higher. The stock market has continued to struggle with good economic news.
Next week, the economic calendar is relatively thin. Bernanke will testify to the House Budget Committee on the economic outlook on Wednesday. Friday’s trade figures could imply some revision to the 4Q11 GDP growth estimate, but won’t tell us much about growth going forward. The following week will be more eventful, with key data on inflation, retail sales, and industrial production.
Indices
 | Last | Last Week | YTD return % |
DJIA | 12062.26 | 11989.83 | 4.19% |
NASDAQ | 2753.88 | 2755.28 | 3.81% |
S&P 500 | 1307.1 | 1299.54 | 3.93% |
MSCI EAFE | 1722.97 | 1715.65 | 3.90% |
Russell 2000 | 798.63 | 795.43 | 1.91% |
Consumer Money Rates
 | Last | 1-year ago |
Prime Rate | 3.25 | 3.25 |
Fed Funds | 0.18 | 0.15 |
30-year mortgage | 4.89 | 5.11 |
Currencies
 | Last | 1-year ago |
Dollars per British Pound | 1.615 | 1.592 |
Dollars per Euro | 1.365 | 1.391 |
Japanese Yen per Dollar | 81.450 | 91.120 |
Canadian Dollars per Dollar | 0.990 | 1.061 |
Mexican Peso per Dollar | 12.039 | 12.953 |
Commodities
 | Last | 1-year ago |
Crude Oil | 90.54 | 76.98 |
Gold | 1354.22 | 1109.40 |
Bond Rates
 | Last | 1-month ago |
2-year treasury | 0.74 | 0.64 |
10-year treasury | 3.63 | 3.40 |
10-year municipal (TEY) | 5.42 | 5.29 |
Treasury Yield Curve – 2/4/2011Â
S&P Sector Performance (YTD) – 2/4/2011Â
Economic Calendar
February 9th |  — | Bernanke Testimony (“Economic Outlook”) |
February 10th |  — | Jobless Claims (week ending February 5th) |
February 11th |  — | Trade Balance (December) Consumer Sentiment (mid-January) |
February 15th |  — | Retail Sales (January) |
February 16th |  — | Producer Price Index (January) Building Permits, Housing Starts (January) Industrial Production (January) FOMC Minutes (January 25th-26th) |
February 17th |  — | Consumer Price Index (January) |
February 21st |  — | Presidents’ Day (markets closed) |
March 4th |  — | Employment Report (February) |
March 15th |  — | FOMC Meeting |
Treasury Yield Curve – 1/28/2011
S&P Sector Performance (YTD) – 1/28/2011
Economic Calendar
January 31st | — | Personal Income and Spending (December) Chicago Purchasing Managers Index (January) |
February 1st | — | ISM Manufacturing Index (January) Construction Spending (December) Motor Vehicle Sales (January) |
February 2nd | — | Announce Corporate Layoff Intentions (January) ADP Payroll estimate (January) |
February 3rd | — | Jobless Claims (week ending January 29th) Nonfarm Productivity (4Q10, preliminary) ISM Non-Manufacturing Index (January) Bernanke Speech (and Q&A) to National Press Club |
February 4th | — | Employment Report (January) |
February 15th | — | Retail Sales (January) |
February 17th | — | Consumer Price Index (January) |
February 21st | — | Presidents Day (markets closed) |
March 15th | — | 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 February 3rd, 2011.
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