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Weekly Market Snapshot

August 29, 2014

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

The estimate of 2Q14 GDP growth was revised slightly higher (to a 4.2% annual rate, vs. 4.0% in the advance estimate) and was a bit better balanced (a smaller inventory build and more business fixed investment). Personal income and spending figures for July disappointed, reflecting a weak start to 3Q14 (note: consumer spending accounts for 70% of GDP). Durable goods orders surged 22.6% in July (that’s in comparison to June!), reflecting a sharp spike in orders at Boeing. Ex-transportation, orders were generally soft.

Russia’s invasion of Ukraine caused mixed, but somewhat limited, reactions in U.S. financial markets.

Next week, financial market participants will return from the three-day holiday weekend to face some fresh economic figures for August. The ISM Manufacturing Index should set the early tone and the auto sales will provide some insight into the consumer spending picture, but the Employment Report should carry the most weight. We’re likely to see a moderately strong pace of growth in nonfarm payrolls, but remember there’s a fair amount of statistical noise in the payroll data (monthly changes are reported accurate to ±90,000).

Investors are sure to keep an eye on geopolitical developments. The European Central Bank’s policy decision on Thursday may have some repercussions here. With a weakening economy and low inflation (and more importantly, declining inflation expectations), the ECB appears poised to embark on its own asset purchase program (QE). However, it’s unclear whether ECB President Draghi will have the votes to achieve that. Low interest rates in Europe have helped put downward pressure on interest rates in the U.S.


Indices

  Last Last Week YTD return %
DJIA 17079.57 17039.49 3.03%
NASDAQ 4557.70 4532.10 9.12%
S&P 500 1996.74 1992.37 8.03%
MSCI EAFE 1922.86 1924.34 0.38%
Russell 2000 1165.95 1160.03 0.20%

Consumer Money Rates

  Last 1-year ago
Prime Rate 3.25 3.25
Fed Funds 0.05 0.09
30-year mortgage 4.10 4.51

Currencies

  Last 1-year ago
Dollars per British Pound 1.658 1.546
Dollars per Euro 1.318 1.335
Japanese Yen per Dollar 103.610 97.380
Canadian Dollars per Dollar 1.086 1.050
Mexican Peso per Dollar 13.113 13.313

Commodities

  Last 1-year ago
Crude Oil 94.55 110.10
Gold 1293.36 1423.10

Bond Rates

  Last 1-month ago
2-year treasury 0.50 0.49
10-year treasury 2.35 2.54
10-year municipal (TEY) 3.35 3.43

Treasury Yield Curve – 8/29/2014


S&P Sector Performance (YTD) – 8/29/2014



Economic Calendar

September 1  —  Labor Day (markets closed)
September 2  —  ISM Manufacturing Index (August)
September 3  —  ADP Payroll Estimate (August)
Fed Beige Book
Motor Vehicle Sales (August)
September 4  —  ECB Policy Meeting
Jobless Claims (week ending August 30)
Trade Balance (July)
ISM Non-Manufacturing Index (August)
September 5  —  Employment Report (August)
September 12  —  Retail Sales (August)
September 17  —  FOMC Policy Decision, Yellen Press Conference

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 August 28, 2014.

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