Market Commentary by Scott J. Brown, Ph.D., Chief Economist
The economic data were mixed, but consistent with lackluster-to-moderate growth in the near term. Unit auto sales rose more than expected in September. Nonfarm payrolls rose by 103,000 (more than expected, but the increase including the return of 45,000 workers who were on strike in August), with a net upward revision of +99,000 for July and August. The unemployment rate held steady, but would have edged lower if not for an increase in labor force participation (the employment-population ratio edged up, but has been little changed over the last year. Chairman Bernanke said that the Fed’s asset maturity program (Operation Twist) should “put downward pressure on longer-term interest rates and help make broader financial conditions more supportive of economic growth.” He told lawmakers to tighten the federal budget over the long term, but cautioned them “to avoid fiscal actions that could impede the ongoing economic recovery.”
Investors were encouraged by the declared intent of European leaders to shore up the banks. The European Central Bank left short-term interest rate unchanged, but took steps to provide temporary liquidity to the banking system. The Bank of England expanded its asset purchases, citing concerns about Europe. Moody’s downgraded the credit rating of Italian government debt by three notches and also downgraded a dozen British banks, but the markets didn’t seem to care much.
Next week, the economic calendar thins out. Monday is a holiday for the bond market. The FOMC policy meeting minutes may shed further light into what the Fed is thinking and what might trigger another round of asset purchases. The retail sales report should reflect a pickup in motor vehicles sales in September, but should be lackluster-to-moderate otherwise.
Indices
| Â | Last | Last Week | YTD return % |
| DJIA | 11123.33 | 11153.98 | -3.92% |
| NASDAQ | 2506.82 | 2480.76 | -5.51% |
| S&P 500 | 1164.97 | 1160.40 | -7.37% |
| MSCI EAFE | 1379.96 | 1402.75 | -16.78% |
| Russell 2000 | 673.80 | 662.80 | -14.02% |
Consumer Money Rates
| Â | Last | 1-year ago |
| Prime Rate | 3.25 | 3.25 |
| Fed Funds | 0.12 | 0.17 |
| 30-year mortgage | 4.32 | 4.49 |
Currencies
| Â | Last | 1-year ago |
| Dollars per British Pound | 1.539 | 1.591 |
| Dollars per Euro | 1.340 | 1.393 |
| Japanese Yen per Dollar | 76.690 | 82.870 |
| Canadian Dollars per Dollar | 1.043 | 1.010 |
| Mexican Peso per Dollar | 13.538 | 12.477 |
Commodities
| Â | Last | 1-year ago |
| Crude Oil | 82.59 | 83.23 |
| Gold | 1643.20 | 1346.70 |
Bond Rates
| Â | Last | 1-month ago |
| 2-year treasury | 0.20 | 0.53 |
| 10-year treasury | 2.15 | 3.18 |
| 10-year municipal (TEY) | 3.37 | 3.99 |
Treasury Yield Curve – 10/07/2011
S&P Sector Performance (YTD) – 10/07/2011
Economic Calendar
| October 3rd |
 — |
Construction Spending (August) ISM Manufacturing Index (September) Motor Vehicle Sales (September) |
| October 10th |
 — |
Columbus Day (bond market closed) |
| October 11th |
 — |
Small Business Optimism (September) |
| October 12th |
 — |
FOMC Minutes (September 20th-21st) |
| October 13th |
 — |
Jobless Claims (week ending October 8th) Trade Balance (August) Treasury Budget (September and FY11, tentative) |
| October 14th |
 — |
Import Prices (September) Retail Sales (September) Consumer Sentiment (mid-October) Business Inventories (August) |
| October 17th |
 — |
Industrial Production (September) |
| October 18th |
 — |
Producer Price Index (September) |
| October 19th |
 — |
Consumer Price Index (September) Building Permits, Housing Starts (September) Fed Beige Book |
| November 2nd |
 — |
FOMC Policy Decision (+Bernanke press briefing) |
| November 4th |
 — |
Employment Report (October) |
| 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 October 6th, 2011.
©2011 Raymond James Financial Services, Inc. member FINRA / SIPC.
