Market Commentary by Scott J. Brown, Ph.D., Chief Economist
The news out of Europe was better. Leaders expressed a greater resolve to overcome the region’s difficulties and keep the euro intact. Germany’s parliament approved (by a wide margin) an expansion of the European Financial Stability Facility. However, the strains remain. There is a long and bumpy path ahead and the markets are expected to react to the news day by day.
U.S. economic data were mixed, but generally better than anticipated. The government’s third estimate of second quarter GDP growth was revised higher, to a 1.3% annual rate vs. +1.0% in the second estimate. The second quarter is pretty much ancient history at this point, but consumer spending and business fixed investment were both revised higher. The advance report on durable goods orders showed a pickup in shipments of nondefense capital goods ex-aircraft in August – suggesting that business fixed investment will post a strong gain in 3Q11 (not surprising, as corporate profits are a major driver of capital spending, and profits were at a record high in 2Q11). Consumer confidence remained depressed in September (after sinking in August), with continued pessimism on jobs. Weekly jobless claims fell unexpectedly in the latest week, but seasonal adjustment makes the figures unreliable.
Next week, fresh September figures begin to roll in, with the focus on the ISM Manufacturing Index (Monday) and the September Employment Report (Friday). In addition, Bernanke will present important testimony to the Joint Economic Committee of Congress on Tuesday. The data reports should go a long way in helping to fill in the economic picture for the third quarter and provide some guidance on what to expect for 4Q11.
Indices
| Last | Last Week | YTD return % | |
| DJIA | 11153.98 | 10733.83 | -3.66% |
| NASDAQ | 2480.76 | 2455.67 | -6.49% |
| S&P 500 | 1160.40 | 1129.56 | -7.73% |
| MSCI EAFE | 1394.51 | 1331.35 | -15.91% |
| Russell 2000 | 662.80 | 643.42 | -15.42% |
Consumer Money Rates
| Last | 1-year ago | |
| Prime Rate | 3.25 | 3.25 |
| Fed Funds | 0.10 | 0.20 |
| 30-year mortgage | 4.10 | 4.28 |
Currencies
| Last | 1-year ago | |
| Dollars per British Pound | 1.563 | 1.580 |
| Dollars per Euro | 1.359 | 1.363 |
| Japanese Yen per Dollar | 76.720 | 83.620 |
| Canadian Dollars per Dollar | 1.035 | 1.031 |
| Mexican Peso per Dollar | 13.589 | 12.510 |
Commodities
| Last | 1-year ago | |
| Crude Oil | 82.14 | 77.86 |
| Gold | 1615.80 | 1309.88 |
Bond Rates
| Last | 1-month ago | |
| 2-year treasury | 0.26 | 0.20 |
| 10-year treasury | 1.99 | 2.15 |
| 10-year municipal (TEY) | 3.26 | 3.37 |
Treasury Yield Curve – 9/30/2011
S&P Sector Performance (YTD) – 9/30/2011
Economic Calendar
| October 3rd |
— |
Construction Spending (August) ISM Manufacturing Index (September) Motor Vehicle Sales (September) |
| October 4th |
— |
S&Bernanke JEC Testimony |
| October 5th |
— |
Challenger Layoff Report (September) ADP Payroll Estimate (September) ISM Non-Manufacturing Index (September) |
| October 6th |
— |
Jobless Claims (week ending October 1st) |
| October 7th |
— |
Employment Report (September) |
| October 10th |
— |
Columbus Day (bond market closed) |
| October 12th |
— |
FOMC Minutes (September 20th-21st) |
| October 14th |
— |
Retail Sales (September) |
| October 19th |
— |
Consumer Price Index (September) |
| November 2nd |
— |
FOMC Policy Decision (+Bernanke press briefing) |
| December 13th |
— |
FOMC Policy Decision (no press briefing) |
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 September 30th, 2011.
©2011 Raymond James Financial Services, Inc. member FINRA / SIPC.
