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Clarksville, TN – Fed tapering concerns continued to weigh against the stock market and helped push long-term interest rate higher. There’s a growing consensus that we will see some reduction in the rate of asset purchases announced next month, but the first move may be a small one, as a compromise among divided Fed officials and as a means of testing market reactions to tapering.
The market reaction to the tapering talk is still a puzzle. Tapering is not tightening and the Fed will continue to support the recovery through its guidance on short-term interest rates. However, long-term interest rates are normally going to rise as an economic recovery progresses.The economic data have been mixed, but generally consistent with moderate growth. Retail sales rose modestly in July, but were better ex-autos. Industrial production was flat, with a slight drop in manufacturing output.
Inflation figures remained mild. Despite the low trend in inflation, real average weekly earnings declined. Residential construction activity rebounded in July, but only partially following a sharp drop in June.
Weekly claims for unemployment insurance are trending lower (play a part in fanning Fed tapering fears). The euro area saw its first increase in GDP in seven quarters (hardly inspiring).
Next week, the focus is expected to be on the minutes of the July 30th-31st Fed policy meeting (released Wednesday afternoon). Investors will be looking for clues about what the Fed will do at the September policy meeting. The home sales data are unlikely to move the markets significantly. The LEI should post a moderately strong gain for July.
Consumer Money Rates
Treasury Yield Curve – 08/16/2013
S&P Sector Performance (YTD) – 08/16/2013
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Tax Equiv Muni yields (TEY) assume a 35% tax rate on triple-A rated, tax-exempt insured revenue bonds.
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 15th, 2013.
Frazier Allen, WMS, CRPS, Financial Advisor with F&M Bank
Web Site: http://www.raymondjames.com/frazierallen
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