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Weekly Market Snapshot

September 12, 2014

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

The economic data calendar was thin. Retail sales rose as expected in August. However, the figures for June and July were revised higher. While the pace of consumer spending growth does not appear to be especially strong into 3Q14, it’s not terrible weak either (and certainly not as bad as the data suggested a month ago). Financial market participants didn’t seem to care much about the retail sales data.

Global anxieties receded a bit as the "no" vote for Scottish independence regained an upper hand in the polls. The markets didn’t react much to President Obama’s call for military action in the Middle East.

Next week, the focus will be on the Fed. Policymakers are expected to reduce the monthly pace of asset purchases by another $10 billion, on track to finish the program at the end of October. The bigger question is whether the Fed will alter its forward guidance on short-term interest rates. In the last four Fed policy statements, officials have indicated that the federal funds rate target is expected to remain "exceptionally low" for "a considerable time" after the asset purchase program (QE3) ends. The Fed’s inflation hawks want to change that, but that’s a minority opinion among policy voters. Note that Fed officials (the five Fed governors and the 12 district bank presidents) will submit revised projections for growth, unemployment, and inflation (extending those out to 2017). They’ll also forecast the Fed funds target for the end of the next few years. In June, these forecasts showed all but one fed official expecting to keep short-term interest rates steady through the end of this year, while all but three expected to begin raising rates sometime in 2015. Forecasts for the federal funds rate at the end of 2015 (and implicitly the expected start date of Fed rate hikes) were all over the place. It will be interesting to see whether these forecasts begin to bunch up around specific levels. The bottom line should remain the same – that is, monetary policy in 2015 will depend on the evolution of the economy in the second half of 2014.


Indices

  Last Last Week YTD return %
DJIA 17049.00 17069.58 2.85%
NASDAQ 4591.81 4562.29 9.94%
S&P 500 1997.45 1997.65 8.07%
MSCI EAFE 1903.85 1932.53 -0.61%
Russell 2000 1172.34 1167.21 0.75%

Consumer Money Rates

  Last 1-year ago
Prime Rate 3.25 3.25
Fed Funds 0.09 0.05
30-year mortgage 4.12 4.57

Currencies

  Last 1-year ago
Dollars per British Pound 1.624 1.577
Dollars per Euro 1.292 1.326
Japanese Yen per Dollar 107.120 100.290
Canadian Dollars per Dollar 1.101 1.034
Mexican Peso per Dollar 13.228 13.058

Commodities

  Last 1-year ago
Crude Oil 92.83 107.56
Gold 1240.91 1359.94

Bond Rates

  Last 1-month ago
2-year treasury 0.57 0.42
10-year treasury 2.60 2.39
10-year municipal (TEY) 3.48 3.49

Treasury Yield Curve – 9/12/2014


S&P Sector Performance (YTD) – 9/12/2014



Economic Calendar

September 15  —  Empire State Manufacturing Ibdex (September)
Industrial Production (August)
September 16  —  Producer Price Index (August)
September 17  —  Consumer Price Index (August)
Homebuilder Sentiment (September)
FOMC Policy Decision, Yellen Press Conference
September 18  —  Scottish Independence Referendum
Jobless Claims (week ending September 13)
Building Permits, Housing Starts (August)
Philadelphia Fed Index (September)
September 19  —  Leading Economic Indicators (August)
October 3  —  Employment Report (September)

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 September 11, 2014.

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