Market Commentary
by Scott J. Brown, Ph.D., Chief Economist
The data remained consistent with a moderate economic recovery with a low inflation trend. The estimate of gross domestic product (GDP) for the first quarter of 2010 was revised to a 3.0% annual rate (vs. +3.2% in the advance estimate and a median forecast of +3.4%), but the story did not change much. April personal income was moderate. Personal spending was flat – following healthy gains in February and March – but still on track for a 2.5% to 3.5% annual rate for the second quarter of 2010. April’s softness in consumer spending was due to a rebound in the savings rate, which rose to 3.6% compared to 3.1% in March (revised from 2.7%). Consumer confidence improved in May.
Evaluations of current job market conditions remained depressed – although a bit less so than in April – but expectations of job availability six months from now turned optimistic (a greater percentage expect more, rather than fewer, jobs) for the first time since January 2005. Sales of new and existing homes rose further in April, reflecting the pending expiration of the homebuyer tax credit (which required a signed contract or initial transaction by the end of April and closing by the end of June).
Still, U.S. financial markets reacted little to the economic data. The stock market mood was driven by the ebb and flow of worries about Europe. The bond market looked to the stock market for direction – Treasuries rallied as the stock market sold off and retreated as share prices recovered. President Barack Obama ordered a moratorium on offshore energy exploration, which pushed oil prices higher.
Next week, U.S. financial market participants will return from the three-day weekend to face some fresh economic figures. Friday’s Employment Report will carry the most weight. The Census Bureau reports that temporary census worker count rose by 417,000 between mid-April and mid-May (Bureau of Labor Statistics data may not reflect all those numbers). Private-sector payrolls are likely to have risen by about 200,000, so we could see a 600,000 gain in nonfarm payrolls. The market should be able to back out of the census impact – note that the census jobs will be shed over the next four months. Market volatility is likely to remain high as investors try to get a grip on what’s happening in Europe and attempt to better gauge the strength of the U.S. economic recovery.
Indices
| Last | Last Week | YTD return % | |
| DJIA | 10258.99 | 10068.01 | -1.62% |
| NASDAQ | 2277.68 | 2204.01 | 0.38% |
| S&P 500 | 1103.06 | 1071.59 | -1.08% |
| MSCI EAFE | 1359.55 | 1351.69 | -13.99% |
| Russell 2000 | 670.51 | 640.04 | 7.21% |
Consumer Money Rates
| Last | 1-year ago | |
| Prime Rate | 3.25 | 3.25 |
| Fed Funds | 0.25 | 0.25 |
| 30-year mortgage | 4.87 | 5.08 |
Currencies
| Last | 1-year ago | |
| Dollars per British Pound | 1.455 | 1.606 |
| Dollars per Euro | 1.235 | 1.392 |
| Japanese Yen per Dollar | 90.760 | 95.000 |
| Canadian Dollars per Dollar | 1.050 | 1.112 |
| Mexican Peso per Dollar | 12.877 | 13.184 |
Commodities
| Last | 1-year ago | |
| Crude Oil | 74.55 | 63.45 |
| Gold | 1211.55 | 955.83 |
Bond Rates
| Last | 1-year ago | |
| 2-year treasury | 0.83 | 0.98 |
| 10-year treasury | 3.33 | 3.72 |
| 10-year municipal (TEY) | 4.65 | 4.88 |
Treasury Yield Curve – 5/28/2010
S&P Sector Performance Charts – 5/28/2010
Economic Calendar
| May 31 | — | Memorial Day Holiday (markets closed) |
| June 1 | — | Bank of Canada Policy Meeting Construction Spending (April) ISM Manufacturing Index (May) |
| June 2 | — | Corporate Layoff Intentions (May) Pending Home Sales (April) Motor Vehicle Sales (May) |
| June 3 | — | Jobless Claims (week ending May 29) Productivity (1Q10, revised) Factory Orders (April) ISM Non-Manufacturing Index (May) |
| June 4 | — | Employment Report (May) |
| June 9 | — | Fed Beige Book |
| June 22/23 | — | FOMC Meeting |
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. The above material has been obtained from sources considered reliable, but we do not guarantee that it is accurate or complete. 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. 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) assume a 35% tax rate on triple-A rated, tax-exempt insured revenue bonds.
Material prepared by Raymond James for use by its financial advisors.
The information contained herein has been obtained from sources considered reliable, but we do not guarantee that the foregoing material is accurate or complete. Data source: Bloomberg, as of close of business May 27th, 2010.
