The Weekly Market Snapshot from Frazier Allen for the week of August 21st

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

Fear remained a significant factor in the financial markets, as concerns about weaker economic growth and worries that Europe’s sovereign debt crisis may be morphing into a fully-fledged banking crisis (with some implications for the U.S.) helped send long-term Treasury yields to record lows (the 10-year note traded briefly below 2%).

The economic data were mixed, but consistent with a lackluster-to-moderate pace of growth in the overall economy, not a recession. Industrial production rose 0.9% (more than expected), boosted by hot weather (increased output of utilities) and a rebound in autos – otherwise, manufacturing output rose 0.3%. Residential construction activity was soft. Existing home sales disappointed (the National Association of Realtors cited problems in the appraisal process and difficulties in obtaining financing). Consumer price inflation rose more than expected, boosted by the seasonal adjustment (which inflated gasoline prices) and higher apparel costs (three large increases in a row). Owner’s equivalent rent (which accounts for about a quarter of the overall CPI and a third of the core CPI) rose 0.3% (as a point of comparison, OER rose 0.3% over the 12 months ending December 2010).

Next week, the economic calendar thins out. There’s a good chance for a surprise in the reports on new home sales and durable goods orders, which are among the most volatile of the government’s data releases. The estimate of 2Q11 GDP growth is expected to be revised slightly lower, but the underlying story should change much. The week’s highlight will be Bernanke’s speech at the Kansas City Fed’s annual monetary policy symposium in Jackson Hole, Wyoming. The title of Bernanke’s speech is “Near- and Long-Term Prospects for the U.S. Economy.” Many market participants are hoping that the Fed chairman will (like last year) signal another round of asset purchases (“QE3”) – however, they are likely to be disappointed given the inflation backdrop. The conference will be attended by central bankers from around the world – so Bernanke may discuss the threat of contagion (from Europe’s banks) to the U.S. financial system.

Indices

Consumer Money Rates

Currencies

Commodities

Bond Rates

Treasury Yield Curve – 8/19/2011

 

S&P Sector Performance (YTD) – 8/19/2011

Economic Calendar

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 18th, 2011.

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