January 29, 2020
Chief Economist Scott Brown discusses the latest market data.
There were a number of important economic data releases, but these had little impact on the financial markets. A retail short squeeze generated some investor anxiety (the White House and Fed Chair Powell were both asked about it). As expected, the Federal Open Market Committee left short-term interest rates unchanged and did not alter its monthly pace of asset purchases ($120 billion per month). In its policy statement, the FOMC acknowledged that the pace of the recovery has “moderated” and that the economic outlook depends on vaccinations (as well as the virus). In his press conference, Chair Powell played down concerns about possible asset bubbles and higher inflation.
Real GDP rose at a 4.0% annual rate in the advance estimate for 4Q20, down 2.5% from a year earlier (recall that GDP fell 10.1% from 4Q19 to 2Q20). Inventory growth picked up, but less than expected, adding 1.0 percentage point to headline growth, while net exports (a wider trade deficit) subtracted 1.5 percentage points to growth. Personal spending weakened in December (and November figures were revised lower), reflecting the pandemic’s impact on holiday sales and travel.
Next week, there is more than the usual uncertainty in the Employment Report. Annual benchmark revisions to the establishment survey data (payrolls, hours, wages) are expected to be small, but seasonal adjustment could exaggerate the January data. The unemployment rate should hold about steady at 6.7%, but that understates the weakness in the job market (as many unemployed workers have exited the labor force). The January ISM surveys should reflect moderate strength, although the headline figures are likely to remain exaggerated by the pandemic’s impact on supplier delivery times.
|Last||Last Week||YTD return %|
Consumer Money Rates
|Last||1 year ago|
|Last||1 year ago|
|Dollars per British Pound||1.3721||1.302|
|Dollars per Euro||1.2122||1.101|
|Japanese Yen per Dollar||104.24||109.02|
|Canadian Dollars per Dollar||1.283||1.320|
|Mexican Peso per Dollar||20.250||18.703|
|Last||1 year ago|
|Last||1 month ago|
|10-year municipal (TEY)||1.06||1.06|
Treasury Yield Curve – 01/29/2021
As of close of business 01/28/2021
S&P Sector Performance (YTD) – 01/29/2021
|February 1||—||ISM Manufacturing Index (January)|
|February 3||—||ADP Payroll Estimate (January)|
|—||ISM Services Index (January)|
|February 4||—||Jobless Claims (week ending January 30)|
|—||Factory Orders (December)|
|February 5||—||Employment Report (January)|
|—||Trade Balance (December)|
|February 10||—||Consumer Price Index (January)|
|February 15||—||Presidents Day Holiday (markets closed)|
|February 17||—||Retail Sales (January)|
|—||Industrial Production (January)|
|March 16||—||FOMC Policy Decision|
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.
The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. The MSCI EAFE (Europe, Australia, Far East) index is an unmanaged index that is generally considered representative of the international stock market. The Russell 2000 index is an unmanaged index of small cap securities which generally involve greater risks. An investment cannot be made directly in these indexes. The performance noted does not include fees or charges, which would reduce an investor’s returns. U.S. 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. U.S. 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 U.S. 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. 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 January 28, 2021.
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