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Weekly Market Snapshot

August 26, 2016

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

In her Jackson Hole speech, Fed Chair Janet Yellen was not expected to provide any significant clues about what will happen at the September 20-21 policy meeting. Surprise! Yellen provided a strong hint that the central bank is a lot closer to raising short-term interest rates. Yellen said, “I believe the case for an increase in the federal funds rate has strengthened in recent months.” Take that in context with other evidence. The minutes of the Fed’s Board of Governors (BOG) July 25 meeting on the discount rate showed that eight of 12 Fed district banks had requested an increase in the discount rate (the rate the Fed charges banks for short-term borrowing). Recall that changes to the discount rate are requested by one or more of the district banks and then approved (or not) by the BOG. Four of those district banks have a vote on the Federal Open Market Committee this year. Comments from New York Fed President Dudley and Fed Vice Chair Stanley Fischer also suggest a willingness to raise rates sooner rather than later. While the September FOMC decision will remain data-dependent, the Fed appears to be a lot closer to raising rates. Oddly, the financial markets initially did not seem to believe it.

The economic data were mixed. Real GDP rose at a 1.1% annual rate in the 2nd estimate for 2Q16 (vs. +1.2% in the advance estimate). Details showed stronger consumer spending (a 3.0% annual rate in the first half of 2016), a smaller decrease in business fixed investment, and a larger drag in inventories (suggesting more potential for a rebound in 3Q16). The revised estimate also showed an upward revision to growth in personal income (a plus for the consumer spending outlook).

Next week we’ll get some fresh economic figures for August. While the ISM Manufacturing Index has some market-moving potential, the focus will be on the employment report. Seasonal adjustment quirks may have boosted the July payroll figure, in which case we ought to see a correction (a more moderate gain) in August – focus on the three-month average, which reduces the impact on monthly noise in the payroll data.


Indices

  Last Last Week YTD return %
DJIA 18448.41 18597.70 5.87%
NASDAQ 5212.20 5240.15 4.09%
S&P 500 2172.47 2187.02 6.29%
MSCI EAFE 1702.17 1707.90 -0.82%
Russell 2000 1240.01 1236.85 9.17%

Consumer Money Rates

  Last 1 year ago
Prime Rate 3.50 3.25
Fed Funds 0.40 0.12
30-year mortgage 3.41 3.84

Currencies

  Last 1 year ago
Dollars per British Pound 1.319 1.546
Dollars per Euro 1.129 1.131
Japanese Yen per Dollar 100.53 119.92
Canadian Dollars per Dollar 1.292 1.329
Mexican Peso per Dollar 18.366 17.013

Commodities

  Last 1 year ago
Crude Oil 47.33 38.60
Gold 1324.60 1124.60

Bond Rates

  Last 1 month ago
2-year treasury 0.78 0.69
10-year treasury 1.56 1.50
10-year municipal (TEY) 2.18 2.25

Treasury Yield Curve – 08/26/2016


As of close of business 08/25/2016


S&P Sector Performance (YTD) – 08/26/2016



As of close of business 08/25/2016


Economic Calendar

August 29  —  Personal Income and Spending (July)
August 30  —  Consumer Confidence (August)
September 1  —  ISM Manufacturing Index (August)
Unit Motor Vehicle Sales (August)
September 2  —  ISM Manufacturing Index (August)
Employment Report (August)
September 5  —  ISM Manufacturing Index (August)
Labor Day Holiday (markets closed)

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. All expressions of opinion reflect the judgment of the Research Department of Raymond James & Associates, Inc. and are subject to change. There is no assurance any of the forecasts mentioned will occur. Investing involves risks including the possible loss of capital.

Data source: Bloomberg, as of close of business August 25, 2016.

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