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Clarksville, TN – Retail sales figures for November were stronger than expected, while results for September and October were revised higher. The report suggests that consumer spending growth is on a moderately strong path in 4Q14 – and we aren’t even close to seeing the full impact of the drop in gasoline prices (expect a bigger benefit for the consumer in the first half of 2015).
The retail sales data did little to offset the negative mood in equities. A further sharp decline in crude oil prices added to the anxiety. A sustained drop in oil prices will be a significant negative for oil producers here and abroad.However, consumers and businesses will benefit significantly from lower gasoline prices, easily offsetting the negative impact on the energy sector. A greater concern may be why oil prices are falling. Some of that reflects increased supply, which is a net positive – but softer demand reflects weakness in the global economy.
Next week, the focus will be on the Fed’s policy statement (and the “considerable time” phrase in particular that signals how long interest rates may stay near zero. ) Minutes of the October 28th-29th policy meeting showed that officials were moving closer to getting rid of the phrase, but were nervous that the financial markets might overreact. If the language changes (and it’s expected to be a close call), we may see something similar (such as the Fed needs to be “patient” before raising rates.)
The Fed will also release revised projections of growth, unemployment, inflation, and the expected federal funds rate at each of the next few years. The dot plot in September showed a wide range, indicating no consensus view on the timing of Fed tightening. There may not be much of a consensus this time either, but the dots may begin to bunch up a bit, suggesting that a consensus policy view may be starting to form. Fed Chair Janet Yellen will explain it all in her post-meeting press conference, where she’s likely to again emphasize that policy action will be data-dependent.
Consumer Money Rates
Treasury Yield Curve – 12/12/2014
S&P Sector Performance (YTD) – 12/12/2014
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.
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 December 11th, 2014.
Frazier Allen, WMS, CRPS, Financial Advisor with F&M Bank
Web Site: http://www.raymondjames.com/frazierallen
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