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

The economic data were mixed, but mostly on the soft side of expectations. Retail sales were a bit weaker than expected in April. Industrial production improved, but partly reflected a surge in the output of utilities (more normal weather). Residential construction figures showed a moderate trend of improvement (from very low levels) in single-family homebuilding. The minutes of the April 24-25 monetary policy meeting showed that Fed officials were worried about the downside risks to growth from Europe and the potential for significantly tighter fiscal policy in the U.S. Fed officials were open to doing more (QE3), but only if the economic recovery were to lose momentum or downside risks intensified.

Greece was unable to form a coalition to run the government and so will have another set of elections on June 17. Most Greeks want to stay in the euro, but most also do not want the imposition of severe austerity. It’s expected that election results will push the country further from austerity. Fears that Greece may exit the euro (and the potential contagion that might follow) hammered global stock markets and led to a further flight to safety in U.S. Treasuries, sending the yield on the 10-year Treasury note to a record low. Thirty-year mortgage rates also hit a record low.

Next week, the economic calendar thins out. The reports on new home sales and durable goods orders are two of the most notoriously erratic economic data releases (choppy and subject to large revisions). Hence, there’s a good chance for a surprise. Europe is expected to remain a key concern for U.S. investors. The weekend meeting of G-8 leaders should result in a strong statement of support for the euro area, but not much action. The bond market will close early on Friday, ahead of the three-day weekend. Looking ahead, the May Employment Report looms as the next major data point for the markets.

Indices

	Last	Last Week	YTD return %
DJIA	12442.49	12855.04	1.84%
NASDAQ	2813.69	2933.64	8.00%
S&P 500	1304.86	1357.99	3.76%
MSCI EAFE	1378.79	1446.19	-2.39%
Russell 2000	754.33	791.75	1.81%

Consumer Money Rates

	Last	1-year ago
Prime Rate	3.25	3.25
Fed Funds	0.17	0.11
30-year mortgage	3.73	4.55

Currencies

	Last	1-year ago
Dollars per British Pound	1.583	1.621
Dollars per Euro	1.272	1.417
Japanese Yen per Dollar	79.380	81.360
Canadian Dollars per Dollar	1.017	0.976
Mexican Peso per Dollar	13.812	11.758

Commodities

	Last	1-year ago
Crude Oil	92.56	96.91
Gold	1576.30	1480.50

Bond Rates

	Last	1-month ago
2-year treasury	0.29	0.27
10-year treasury	1.72	1.98
10-year municipal (TEY)	3.00	3.25

Treasury Yield Curve – 5/18/2012

S&P Sector Performance (YTD) – 5/18/2012

Economic Calendar

May 22	—	Existing Home Sales (April)
May 23	—	New Home Sales (April)
May 24	—	Jobless Claims (week ending May 19) Durable Goods Orders (April)
May 25	—	Consumer Sentiment (May)
May 28	—	Memorial Day Holiday (markets closed)
May 29	—	Consumer Confidence (May)
May 30	—	Real GDP (1Q12, 2nd estimate)
June 1	—	Employment Report (May) ISM Manufacturing Index (May)
June 20	—	FOMC Policy Decision Bernanke Press Briefing

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. 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.

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 17, 2012.