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September 22, 2017

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

As expected, the Federal Open Market Committee (FOMC) left the federal funds target range unchanged (at 1.00-1.25%) after its September 19-20 policy meeting. The FOMC also announced the beginning of balance sheet reduction. The Fed had outlined how this would work in mid-June, and officials did a good job in telegraphing when it would start (October). Chair Yellen indicated that the Fed is unlikely to deviate from its balance sheet reduction plans (we’d need to see a significant negative shock to the economy with short-term interest rates moving near to zero first). Investors were more surprised by the dot plot, which continued to show a majority of Fed officials anticipating one more rate hike by the end of the year. The federal funds futures market showed more than a 70% chance of a December rate hike (vs. 50% after the August CPI report and around 36% a few weeks ago). Bond yields edged up and the dollar strengthened on the news. 

The economic data reports were inconsequential. Hurricane Harvey likely had some impact on August homebuilding and existing home sales. The import price data showed building inflationary pressure in raw materials, but limited increases in capital equipment and consumer goods. 

Next week, Fed Chair Janet Yellen will speak, but is not expected to cover any new ground (expounding on the themes from her press conference). The 3rd estimate of second quarter GDP growth is expected to be close to the previous estimate (3.0%). Investors are more concerned about growth in the quarters ahead. A number of this week’s reports (i.e., durable goods, advance economic indicators, personal spending), while not market-moving, will help to fill in the economic picture for 3Q17.


Indices

  Last Last Week YTD return %
DJIA 22359.23 22203.48 13.14%
NASDAQ 6422.69 6429.09 19.31%
S&P 500 2500.60 2495.62 11.69%
MSCI EAFE 1969.26 1959.03 16.94%
Russell 2000 1444.18 1425.02 6.41%

Consumer Money Rates

  Last 1 year ago
Prime Rate 4.25 3.50
Fed Funds 1.16 0.40
30-year mortgage 3.97 3.43

Currencies

  Last 1 year ago
Dollars per British Pound 1.358 1.308
Dollars per Euro 1.194 1.121
Japanese Yen per Dollar 112.48 100.76
Canadian Dollars per Dollar 1.233 1.304
Mexican Peso per Dollar 17.880 19.615

Commodities

  Last 1 year ago
Crude Oil 50.55 46.32
Gold 1294.80 1344.70

Bond Rates

  Last 1 month ago
2-year treasury 1.43 1.34
10-year treasury 2.25 2.20
10-year municipal (TEY) 2.98 2.88

Treasury Yield Curve – 09/22/2017


As of close of business 09/21/2017


S&P Sector Performance (YTD) – 09/22/2017



As of close of business 09/21/2017


Economic Calendar

September 26  —  New Home Sales (August)
 —  CB Consumer Confidence (September)
 —  Yellen Speech (to NABE conference)
September 27  —  Durable Goods Orders (August)
September 28  —  Jobless Claims (week ending September 23)
 —  Real GDP (2Q17, 3rd estimate)
 —  Advance Economic Indicators (August)
September 29  —  Personal Income and Spending (August)
October 2  —  ISM Manufacturing Index (September)
October 3  —  Motor Vehicle Sales (September)
October 6  —  Employment Report (September)
October 9  —  Columbus Day (bond market closed)
November 1  —  FOMC Policy Decision (no press conference)
December 13  —  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.

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 September 21, 2017.