Weekly Market Snapshot
July 18, 2014

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

The retail sales and industrial production reports had similar stories – gains in June were disappointing relative to expectations, but figures for April and May were revised higher. These data (which are subject to revision) are consistent with a sharp rebound in economic activity in 2Q14 (following weather–related weakness in 1Q14), but also suggest some loss of momentum heading towards 3Q14. The Producer Price Index and import price reports showed no appreciable pipeline pressures for inflation.

Fed Chair Janet Yellen provided little new information in her monetary policy testimony to Congress. The Fed believes that “the recovery is not yet complete” and “a high degree of policy accommodation remains appropriate.” She indicated that the Fed’s asset purchases should come to an end after October. In Q&A, Yellen refused to be pinned down on a date for the first increase in short-term interest rates. She noted that low rates could lead to a reach for yield, which could create vulnerabilities for the financial system. She said that while valuations may be stretched in some areas (such as speculative-grade corporate bonds), “prices of real estate, equities, and corporate bonds, remain generally in line with historical norms.”

Geopolitical tensions escalated (Russia/Ukraine, the Middle East), but appeared to have only a transitory impact on the financial markets.

Next week, the economic data releases have some potential to move the markets. However, investors may be more concerned about geopolitical tensions. Home sales figures are likely to be mixed. Durable goods orders are normally choppy from month to month, but shipments and inventory data (included in the report) will have some implications for estimates of 2Q14 GDP growth. The Consumer Price Index should be boosted slightly by the seasonal adjustment for gasoline (price were up slightly, but normally fall in June). The Core CPI is likely to remain mild.


Indices

  Last Last Week YTD return %
DJIA 16976.81 16915.07.24 2.41%
NASDAQ 4363.45 4396.204 4.47%
S&P 500 1954.79 1964.68 5.94%
MSCI EAFE 1954.79 1943.87 2.05%
Russell 2000 1133.60 1161.86 -2.58%

Consumer Money Rates

  Last 1-year ago
Prime Rate 3.25 3.25
Fed Funds 0.09 0.06
30-year mortgage 4.13 4.37

Currencies

  Last 1-year ago
Dollars per British Pound 1.711 1.522
Dollars per Euro 1.353 1.315
Japanese Yen per Dollar 101.470 99.660
Canadian Dollars per Dollar 1.075 1.039
Mexican Peso per Dollar 12.946 12.654

Commodities

  Last 1-year ago
Crude Oil 103.19 106.48
Gold 1304.27 1286.48

Bond Rates

  Last 1-month ago
2-year treasury 0.46 0.47
10-year treasury 2.47 2.65
10-year municipal (TEY) 3.63 3.66

Treasury Yield Curve – 7/18/2014


S&P Sector Performance (YTD) – 7/18/2014



Economic Calendar

July 22  —  Consumer Price Index (June)
Existing Home Sales (June)
July 24  —  Jobless Claims (week ending July 19)
New Home Sales (June)
July 25  —  Durable Goods Orders (June)
July 28  —  Pending Home Sales Index (June)
July 29  —  Consumer Confidence (July)
July 30  —  ADP Payroll Estimate (July)
Real GDP (2Q14 advance and benchmark revisions)
FOMC Policy Decision (no press conference)
July 31  —  Employment Cost Index (July)
ISM Manufacturing Index (July)
August 1  —  Employment Report (July)

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. 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) assumes a 35% tax rate. Municipal securities may lose their tax-exempt status if certain legal requirements are not met, or if tax laws change.

Material prepared by Raymond James for use by its financial advisors.

Data source: Bloomberg, as of close of business July 17, 2014.

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