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

Global equity markets rallied on progress on a Greek bailout package, but reacted negatively as Greece stumbled as it approached the finish line. In the U.S., investors began to question whether the stock market rally has gone to fast in 2012.

The economic calendar was thin. Consumer credit rose sharply in December, following a strong gain in November, apparently reflecting the improvement in motor vehicle sales. The trade deficit was narrower than expected in December (implying, all else equal, a small upward revision to the 4Q11 GDP growth estimate). Five big banks reached a foreclosure settlement with the attorneys general of 49 states and the Obama administration, which will provide mortgage adjustments for about 10% of those underwater on their mortgages and distribute checks of around $2000 to about 750,000 who were foreclosed upon through faulty or fraudulent practices. The settlement should help the housing sector to some extent, but is not expected to lead to a sharp recovery.

Next week, the economic calendar turns busy. The focus is likely to be on the reports of retail sales and consumer prices. Seasonal adjustment may magnify the impact of unusually mild weather in January (likely apparent in residential construction and industrial production). The White House’s Office of Management and Budget will release its budget outlook on Monday. Significant deficit reduction is expected in this plan, following required discretionary spending cuts from last year’s Budget Control Act, but it will be interesting to see what gets cut and whether there will be a push to soften or postpone scheduled tax increases (the Bush tax cuts and the reduction in payroll taxes). Note that the payroll tax reduction, which is set to expire at the end of February, has yet to be extended for the full calendar year.

Indices

	Last	Last Week	YTD return %
DJIA	12890.461	12705.41	5.51%
NASDAQ	2927.23	2859.68	12.36%
S&P 500	1351.95	1325.54	7.50%
MSCI EAFE	1549.80	1518.58	9.72%
Russell 2000	824.99	812.89	11.35%

Consumer Money Rates

	Last	1-year ago
Prime Rate	3.25	3.25
Fed Funds	0.12	0.13
30-year mortgage	3.89	5.06

Currencies

	Last	1-year ago
Dollars per British Pound	1.583	1.610
Dollars per Euro	1.330	1.371
Japanese Yen per Dollar	77.530	82.370
Canadian Dollars per Dollar	0.994	0.994
Mexican Peso per Dollar	12.712	12.051

Commodities

	Last	1-year ago
Crude Oil	99.84	86.71
Gold	1739.40	1363.03

Bond Rates

	Last	1-month ago
2-year treasury	0.27	0.22
10-year treasury	1.98	1.86
10-year municipal (TEY)	2.85	2.85

Treasury Yield Curve – 2/10/2012

S&P Sector Performance (YTD) – 2/10/2012

Economic Calendar

February 13	—	OMB Budget Outlook
February 14	—	Small Business Optimism (January) Import Prices (January) Retail Sales (January
February 15	—	Empire St. Manufacturing Index (February) Industrial Production (January) Homebuilder Sentiment (February) FOMC Minutes (January 1/24-25)
February 16	—	Jobless Claims (week ending February 11) Producer Price Index (January) Building Permits, Housing Starts (January) Philadelphia Fed Index (February)
February 17	—	Consumer Price Index (January) Leading Economic Indicators (January)
February 20	—	President’s Day Holiday (markets closed)
March 9	—	Employment Report (February)
March 13	—	FOMC Policy Decision (no press briefing)

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. Also municipal bonds may be subject to capital gains taxes if sold or redeemed at a profit. 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 February 9, 2012.