The Weekly Market Snapshot from Frazier Allen for the week of January 6th, 2013

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

On New Year’s Day (technically, the December 31 legislative workday), Congress approved the Senate’s plan to lessen the impact of the fiscal cliff. The American Tax Relief Act (ATRA) raises taxes for upper income households. The passage of the plan removes a major uncertainty for the financial markets. That is, we now know what tax rates are going to be.

However, there were a number of problems with the plan. Congress failed to prevent (or offset) a two percentage point increase in payroll taxes, which should dampen consumer spending growth in the near term. The bill postponed large spending cuts by two months, did little to reduce the long-term budget shortfall, and did not address the federal debt ceiling.

Treasury announced that the debt ceiling was hit on December 31st, but through evasive action (creative accounting), it can continue to fund the government for two or three months. The passage of ATRA sets up further legislative showdowns (a mini-cliff) in the next two months over raising the debt ceiling, what to do about spending, and how to work toward a plan to reduce the deficit over the long term.

The economic data were mixed, but consistent with moderate growth in late 2012. Nonfarm payrolls rose by 155,000, supported partly by a rebound from the effects of Hurricane Sandy. Nonfarm payrolls averaged a 159,000 monthly gain in 2012 (vs. +153,000 in 2011) – note that annual benchmark revisions to the payroll data are due next month. The unemployment rate held steady at 7.8% (benchmark revisions to the Household Survey data did not change the recent history by much). Unit motor vehicle sales were stronger than expected in December and will likely add to overall growth in 4Q12.

Minutes of the December 11-12 Fed policy meeting showed some disagreement among Fed officials regarding when to end its asset purchase program. Some market participants interpreted this to mean that purchases would end sooner rather than later. Such views are likely misguided, but yields on long-term Treasury securities rose.

Next week, the economic calendar thins out considerably. None of the reports should be market-moving.

Indices

	Last	Last Week	YTD return %
DJIA	13391.36	13096.31	2.19%
NASDAQ	3100.57	2985.91	2.68%
S&P 500	1459.37	1418.10	2.33%
MSCI EAFE	1628.10	1609.75	1.50%
Russell 2000	872.60	837.40	2.74%

Consumer Money Rates

	Last	1-year ago
Prime Rate	3.25	3.25
Fed Funds	0.17	0.07
30-year mortgage	3.35	3.91

Currencies

	Last	1-year ago
Dollars per British Pound	1.616	1.565
Dollars per Euro	1.311	1.305
Japanese Yen per Dollar	86.880	76.690
Canadian Dollars per Dollar	0.986	1.010
Mexican Peso per Dollar	12.742	13.686

Commodities

	Last	1-year ago
Crude Oil	92.92	102.96
Gold	1676.80	1598.97

Bond Rates

	Last	1-month ago
2-year treasury	0.26	0.24
10-year treasury	1.93	1.62
10-year municipal (TEY)	3.03	2.66

Treasury Yield Curve – 01/04/2013

S&P Sector Performance (YTD) – 01/04/2013

 

Economic Calendar

January 10th	—	Jobless Claims (week ending January 5th)
January 11th	—	Trade Balance (November)
January 15th	—	Producer Price Index (December) Retail Sales (December)
January 16th	—	Consumer Price Index (December) Industrial Production (December) Fed Beige Book
January 17th	—	Building Permits, Housing Starts (December)
January 21st	—	MLK, Jr. Holiday (markets closed)
January 30th	—	Real GDP (1Q13, advance estimate) FOMC Policy Decision (no Bernanke 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 January 3rd, 2013.

©2013 Raymond James Financial Services, Inc. member FINRA / SIPC.