The Weekly Market Snapshot from Frazier Allen

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

News of the death of Osama bin Laden had only a fleeting positive effect on the stock market on Monday. The economic data were mixed, with some disappointment in the ISM Non-Manufacturing Index and weekly jobless claims, but there was an upside surprise in nonfarm payrolls. Commodity prices tumbled sharply on Thursday, reflecting a partial unwinding of the speculative element.

Nonfarm payrolls rose by 244,000 (median forecast: +195,000), with a 46,000 upward revision to the two previous months. Private-sector payrolls rose by 268,000 – a 233,000 average over the last three months (vs. +104,000 in the three months before that) and gains were broad-based. State and local government payrolls fell by 22,000, down 272,000 (or -1.4%) over the last 12 months. The unemployment rate rose to 9.0%, from 8.8% (it was 9.8% in November), but these figures have been unreliable in recent months. The employment-to-population ratio, a better measure of capacity utilization in the labor market, edged down to 58.4%, little changed over the last year.

Next week, the important economic data bunch up at the end of the week. The seasonal adjustment anticipates increase in the wholesale and retail price of gasoline in April. Hence, the impact on the headline PPI and CPI will be limited. Core inflation is expected to remain relatively low, although at a somewhat higher trend than in 2010. Retail sales figures are adjusted for shifts in the timing of Easter, but it’s tough to get it precisely right. Higher gasoline prices should add to the retail sales total. However, sales results were generally better than expected last month.

Indices

	Last	Last Week	YTD return %
DJIA	12584.17	12763.31	8.69%
NASDAQ	2814.72	2872.53	6.10%
S&P 500	1335.10	1360.48	6.16%
MSCI EAFE	1755.56	1792.80	5.87%
Russell 2000	829.24	861.55	5.82%

Consumer Money Rates

	Last	1-year ago
Prime Rate	3.25	3.25
Fed Funds	0.10	0.21
30-year mortgage	4.62	5.07

Currencies

	Last	1-year ago
Dollars per British Pound	1.642	1.513
Dollars per Euro	1.458	1.289
Japanese Yen per Dollar	80.160	94.160
Canadian Dollars per Dollar	0.967	1.026
Mexican Peso per Dollar	11.690	12.646

Commodities

	Last	1-year ago
Crude Oil	99.80	79.97
Gold	1481.60	1172.25

Bond Rates

	Last	1-month ago
2-year treasury	0.61	0.89
10-year treasury	3.22	3.50
10-year municipal (TEY)	4.28	5.11

Treasury Yield Curve – 5/6/2011

S&P Sector Performance (YTD) – 5/6/2011

Economic Calendar

May 10th	—	Small Business Sentiment (April) Import Prices (April)
May 11th	—	Trade Balance (March)
May 12th	—	Jobless Claims (week ending May 7th) Producer Price Index (April) Retail Sales (April)
May 13th	—	Consumer Price Index (April) Consumer Sentiment (mid-May)
May 17th	—	Building Permits, Housing Starts (April) Industrial Production (April)
May 30th	—	Memorial Day Holiday (markets closed)
June 21st-22nd	—	FOMC Meeting Bernanke Press Conference

Important Disclosures

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 5th, 2011.

©2011 Raymond James Financial Services, Inc. member FINRA / SIPC.

The Weekly Market Snapshot from Frazier Allen

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

The economic calendar was thin. The stock market continued to shrug off worries for the most part. The threat of a government shutdown and a continued surge in oil prices did not seem to generate much concern, but another earthquake in Japan caused a brief reaction in U.S. markets. The European Central Bank raised short-term interest rates, as expected. Oil prices continued higher. West Texas Intermediate rose to over $110.00 per barrel, but Brent (which is more representative of the global price of oil and more important for gasoline prices) exceeded $125.00. Gasoline futures suggested that the average retail price may near $4.00 per gallon soon.

The minutes of the March 15th FOMC policy meeting showed that Fed officials felt that the inflationary impact from higher food and energy prices was likely to be “transitory.” Risks to the growth outlook were seen as “roughly balanced,” but officials noted that a more substantial increase in oil prices would add downside risk to growth and upside risk to inflation. [Read more]

The Weekly Market Snapshot from Frazier Allen

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

The March Employment Report was good, but not great. Nonfarm payrolls rose by 216,000 – a 159,000 monthly pace in 1Q11 (about 130,000 would correspond to trend growth in the working-age population, and we’d rather see +300,000 per month for a couple of years to make up for the jobs lost during the recession). Private-sector payrolls rose by 230,000, up 1.5% from a year ago. State and local government shed 15,000, following a 46,000 decline in February (-282,000, or -1.4%, from a year ago). The unemployment rate edged down to 8.8%, vs. 8.9% in February and 9.8% in November. The employment-population ratio, a better measure of capacity utilization in the labor market, edged up to 58.5%, trending gradually higher in recent months, but little changed from a year ago. Average hourly earnings and average weekly earnings were flat (up 1.7% year-over-year and 2.3% year-over-year respectively – note that the Consumer Price Index rose 2.1% in the 12 months ending in February). [Read more]

The Weekly Market Snapshot from Frazier Allen

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

February new home sales, existing home sales, and durable goods orders were all weaker than anticipated (new home sales hit a record low!), but the stock market didn’t care. Portugal’s government collapsed after a failure of a vote on austerity measures. Japan’s nuclear problems did not go away. The conflict in Libya continued. Apparently, there’s still plenty of cash in the market looking for something to do.

The Federal Reserve announced the Chairman Bernanke will hold press briefings four times per year to present the Federal Open Market Committee’s current economic projections and to provide additional context for the FOMC’s policy decisions. For 2011, these briefings will be held at 2:15pm following the FOMC decisions on April 27th, June 22nd, and November 2nd. On these days the release of the FOMC policy statement will be moved up to 12:30pm. The Fed said that “the introduction of regular press briefings is intended to further enhance the clarity and timeliness of the Federal Reserve’s monetary policy communication.” Fed officials were reported to have been taken off guard by the widespread criticism of policies undertaken in 2010. [Read more]

The Weekly Market Snapshot from Frazier Allen

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

There were plenty of economic data reports, but the focus was primarily on Japan. Worries about trade and supply-chain disruptions, as well as escalating problems at damaged Japanese nuclear reactors, sent global equity markets sharply lower. However, the U.S. stock market rebounded broadly. G7 finance ministers and central bankers agreed to rare coordinated intervention in the currency markets to prevent the yen from strengthening. Late Thursday, the U.N. Security Council agreed to set up a no-fly zone in Libya and there were reports of U.S. arms being supplied to the opposition thru Egypt, but on Friday, Qaddafi signaled a cease-fire.

The Federal Open Market Committee left short-term interest rates unchanged and kept its conditional commitment to keep rates low for “an extended period.” The FOMC recognized that higher prices of energy and other commodities will put upward pressure on consumer price inflation in the near term, but said that it expects the impact to be “transitory.” Still, the FOMC promised to watch the underlying trend in inflation and inflation expectations closely. [Read more]

The Weekly Market Snapshot from Frazier Allen

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

The economic calendar was thin. Retail sales rose about as anticipated in February, but January figures were revised higher. The trade deficit widened sharply in January, suggesting that net exports may make a significant subtraction from Q111 GDP growth. Claims for unemployment insurance rose, but seasonal adjustment made the figures questionable (the underlying trend is down). Consumer sentiment sank in the mid-month reading for March, with a sharp plunge in expectations for the next six months and a pickup in inflation expectations – this was the first economic report that could reflect the recent surge in gasoline prices, and the results were not good.

Oil prices retreated, but remained a considerable worry for U.S. equity market participants. Libya tilted toward civil war. Moody’s downgraded Spanish debt. A major earthquake hit Japan. [Read more]

The Weekly Market Snapshot from Frazier Allen

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

The economic data were mostly on the strong side of expectations. Nonfarm payrolls rose by 192,000 in February, while the two previous months were revised higher by 58,000. February strength partly reflected a rebound from January’s poor weather (payrolls averaged a 127,500 monthly gain in the first two months of the year, nothing to write home about). Private-sector payrolls rose by 222,000 (+1.5 million from a year ago), while state and local government subtracted another 30,000 (-241,000 from a year ago). The unemployment rate fell to 8.9% (it was 9.8% in November), but that is misleading. The employment-population ratio, the preferred measure of slack in the labor market, held steady at 58.4% (vs. 58.5% in February 2010). Average weekly hours were flat (probably reflecting the weather). Average hourly earnings were essentially unchanged (+1.7% year-over-year), with weekly earnings also flat (+2.3% year-over-year). The February ISM manufacturing survey was the strongest since May 2004 and the non-manufacturing survey was the strongest since July 2005. Motor vehicle sales rose to a 13.4 million seasonally adjusted annual rate in February, vs. 12.6 million in January and 10.7 million in February 2010. [Read more]

The Weekly Market Snapshot from Frazier Allen

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

Investors remained focused on political developments in the Middle East and North Africa. The turmoil in Libya led to a drop in oil production (less than 1% of global output), higher oil prices, and a dampening of U.S. stock market sentiment. Assurances that other producers could make up for the Libyan shortfall helped stem the rise oil prices, although broader worries remain. At the end of the week, gasoline futures suggested about a $3.60 average price for a gallon of gasoline – the increase in gasoline prices, if sustained, would offset much of the positive benefit (to consumer spending) of lower payroll taxes.

The economic data were mixed, partly reflecting unfavorable weather in January. The estimate of real GDP growth for Q410 was revised down (to a +2.8% annual rate, vs. +3.2% in the advance estimate). Consumer spending growth was revised lower (to 4.1% from 4.4%), as anticipated, and business fixed investment was a bit higher (mostly business structures). Oddly, there was virtually no revision in either inventories (which subtracted 3.7 percentage points from GDP growth in 4Q10) or in net exports (which added 3.4 percentage points). State and local government expenditures fell at a 2.4% annual rate (vs. -0.8% in the advance estimate), reflecting budget strains. [Read more]

The Weekly Market Snapshot from Frazier Allen

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

The Weekly Market Snapshot from Frazier Allen

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

The economic calendar was thin. The December trade deficit was narrower than expected, implying (all else equal) a small upward revision to the fourth quarter GDP growth figure. Consumer sentiment edged up in the mid-February reading, still relatively low by historical standards.

In testimony to the House Budget Committee, Fed Chairman Bernanke repeated that “we have seen increased evidence that a self-sustaining recovery in consumer and business spending may be taking hold,” but continued to caution that “it will be several years before the unemployment rate has returned to a more normal level.” He said that the Federal Open Market Committee will continue to review its current asset purchase program, but gave no indication that the program (which is set to finish at the end of June) would be cut short. [Read more]

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