TBT Financial ServicesAn Independent Firm

Weekly Market Snapshot

May 22, 2015

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

The economic data reports were mixed. Homebuilder sentiment declined in May, but residential homebuilding was stronger than expected in April. Some of that reflects a rebound from bad weather, but it's also a consequence of the high level of volatility in the multifamily sector (single-family permits were higher, but not exactly booming). Consumer price inflation remained negative on a year-over-year basis (-0.2%), but core inflation rose slightly more than anticipated.

Investors remained sensitive to minor changes in the Fed outlook. Minutes of the April 28-29 policy meeting show that a few officials thought that conditions might warrant an initial rate hike at the June meeting. However, that was very much a minority view and subsequent economic data suggest that such a move is very unlikely.

Fed Chair Janet Yellen said that the first quarter slowdown was due to "transitory" restraints and possibly statistical noise. If growth picks up, as expected, it should be appropriate for the Fed to begin raising rates later this year. Importantly, she said that "if conditions develop as my colleagues and I expect, then the FOMC's objectives of maximum employment and price stability would best be achieved by proceeding cautiously, which I expect would mean that it will be several years before the federal funds rate would be back to its normal, longer-run level."

Next week, the holiday-shortened week will be bookended by important economic reports. Durable goods orders are likely to have fallen in April, reflecting a pullback in aircraft orders (which spiked sharply higher in March). Keep an eye on capital goods orders, which have been weakening in recent months. New home sales are erratic, which means that there is a good chance for a surprise. Consumer spending dipped in April, but we should see a bounce in May (watch for revisions). The estimate of 1Q15 GDP growth (a +0.2% annual rate in the advance estimate) is expected to be revised down into negative territory.


Indices

  Last Last Week YTD return %
DJIA 18285.74 18252.24 2.60%
NASDAQ 5090.79 5050.80 7.49%
S&P 500 2130.82 2121.10 3.49%
MSCI EAFE 1948.41 1942.47 9.78%
Russell 2000 1256.74 1245.11 4.32%

Consumer Money Rates

  Last 1 year ago
Prime Rate 3.25 3.25
Fed Funds 0.12 0.08
30-year mortgage 3.84 4.14

Currencies

  Last 1 year ago
Dollars per British Pound 1.569 1.689
Dollars per Euro 1.117 1.368
Japanese Yen per Dollar 120.990 101.060
Canadian Dollars per Dollar 1.220 1.091
Mexican Peso per Dollar 15.144 12.908

Commodities

  Last 1 year ago
Crude Oil 59.97 104.52
Gold 1210.24 1290.81

Bond Rates

  Last 1 month ago
2-year treasury 0.61 0.51
10-year treasury 2.21 1.92
10-year municipal (TEY) 3.58 3.09

Treasury Yield Curve – 05/22/2015


S&P Sector Performance (YTD) – 05/22/2015



Economic Calendar

May 25  —  Memorial Day Holiday (markets closed)
May 26  —  Durable Goods Orders (April)
New Home Sales (April)
Consumer Confidence (May)
May 28  —  Jobless Claims (week ending May 23)
Pending Home Sales Index (April)
May 29  —  Real GDP (1Q15, 2nd estimate)
Chicago Purchasing Managers Index (May)
Consumer Sentiment (May)
June 1  —  ISM Manufacturing Index (May)
June 2  —  Motor Vehicle Sales (May)

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 May 21, 2015.

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