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June 16, 2017

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

It was a busy week for the economic data, which came as a contrast to an optimistic Federal Reserve. Retail sales, industrial production and residential construction figures were all softer than expected, but still consistent with moderate growth in the overall economy. Consumer price inflation surprised to the downside. Small business optimism remained elevated. The University of Michigan’s Consumer Sentiment Index fell in the mid-June assessment. Details of that report noted a sharp drop after Comey’s testimony (June 8). 

The Federal Open Market Committee raised the federal funds target rate by 25 basis points, as expected, to 1.00-1.25%. The Fed’s Board of Governors approved a similar increase in the primary credit rate (the discount rate) to 1.75%. The FOMC announced guidelines for reducing the size of the balance sheet (expected to start by the end of the year, but no specific date yet). The Fed will set an initial cap ($10 billion) for the monthly run-off in its portfolio, gradually increasing that (to $50 billion). In the Summary of Economic Projections, senior Fed officials did not revise the projections of GDP growth by much, but saw somewhat lower inflation and a lower unemployment rate for this year. The dots in the dot plot did not shift much. Of the 16 senior Fed officials, four expect no further rate increases this year, eight expect one increase, and four expect two increases (note that seven of these officials do not vote on policy). In her post-meeting press conference, Chair Yellen was more hawkish than expected (somewhat dismissive of recent signs of economic softness and low inflation readings). 

Next week, the economic calendar thins out some. Home sales figures have some potential to surprise, but should not alter the bigger economic picture.


Indices

  Last Last Week YTD return %
DJIA 21359.90 21182.53 8.08%
NASDAQ 6165.50 6321.77 14.53%
S&P 500 2432.46 2433.79 8.65%
MSCI EAFE 1877.04 1894.49 11.46%
Russell 2000 1410.04 1415.61 3.90%

Consumer Money Rates

  Last 1 year ago
Prime Rate 4.25 3.50
Fed Funds 1.16 0.38
30-year mortgage 4.00 3.52

Currencies

  Last 1 year ago
Dollars per British Pound 1.276 1.420
Dollars per Euro 1.115 1.123
Japanese Yen per Dollar 110.93 104.26
Canadian Dollars per Dollar 1.327 1.297
Mexican Peso per Dollar 18.043 18.945

Commodities

  Last 1 year ago
Crude Oil 44.46 46.21
Gold 1254.60 1298.40

Bond Rates

  Last 1 month ago
2-year treasury 1.33 1.27
10-year treasury 2.16 2.24
10-year municipal (TEY) 2.85 3.11

Treasury Yield Curve – 06/16/2017


As of close of business 06/15/2017


S&P Sector Performance (YTD) – 06/16/2017



As of close of business 06/15/2017


Economic Calendar

June 21  —  Existing Home Sales (May)
June 22  —  Jobless Claims (week ending June 17)
 —  Leading Economic Indicators (May)
June 23  —  New Home Sales (May)
June 26  —  Durable Goods Orders (May)
June 27  —  Consumer Confidence (June)
June 27  —  ISM Manufacturing Index (June)
 —  Financial markets close early
July 4  —  Independence Day holiday (markets closed)
July 7  —  Employment Report (June)
July 26  —  FOMC Policy Decision (no Yellen press conference)
September 20  —  FOMC Policy Decision (Yellen press conference)

 

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 or that any trends mentioned will continue in the future. Investing involves risks including the possible loss of capital. Past performance is not a guarantee of future results. International investing is subject to additional risks such as currency fluctuations, different financial accounting standards by country, and possible political and economic risks, which may be greater in emerging markets. While interest on municipal bonds is generally exempt from federal income tax, it may be subject to the federal alternative minimum tax, and 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. Municipal bonds may be subject to capital gains taxes if sold or redeemed at a profit. Taxable Equivalent Yield (TEY) assumes a 35% tax rate.

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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. Gross Domestic Product (GDP) is the annual total market value of all final goods and services produced domestically by the U.S. The federal funds rate (“Fed Funds”) is the interest rate at which banks and credit unions lend reserve balances to other depository institutions overnight. The prime rate is the underlying index for most credit cards, home equity loans and lines of credit, auto loans, and personal loans. Material prepared by Raymond James for use by financial advisors. Data source: Bloomberg, as of close of business June 15, 2017.