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LPL FINANCIAL RESEARCH
Member FINRA/SIPC
Market Insight Quarterly Chart Book
Second Quarter 2011
LPL FINANCIAL RESEARCH
2LPL Financial Member FINRA/SIPC
The Quarterly Market Insight Chart Book is intended to provide unbiased context to the markets and economy. The Chart Book provides a factual framework to discuss the issues most relevant to investing using simple to understand charts of key data. The Chart Book can be helpful in addressing key topics such as economic growth in the United States and abroad, job growth, stock market valuations, corporate profits, inflation, monetary policy, commodity prices, and bond yields. This data is intended to help investors understand performance, recognize risks, and identify opportunities.
There are two sections to the chart book. The main section features charts that will regularly appear in each quarterly edition. The second section features topical charts most relevant to the current environment that will vary from quarter-to-quarter.
LPL FINANCIAL RESEARCH
3LPL Financial Member FINRA/SIPC
4 Gross Domestic Products (GDP) Growth Rate
5 Emerging Market Gross Domestic Product (GDP) Growth
6 Budget Deficit Percent of Gross Domestic Product (GDP)
7 Unemployment Rate
8 Non-farm Job Growth
9 Wages and/or Personal Income/Personal Spending
10 Home Sales
11 Home Prices
12 Vehicle Sales
13 Current Conditions Index (CCI)
14 Current Conditions Index (CCI) Components
15 Consumer Price Index (CPI)
16 Commodity Price Index
17 Institute for Supply Management (ISM) Index
18 Consumer Sentiment
19 Federal Funds Rate with Futures Implied Going Out One Year
20 Federal Reserve (Fed) Balance Sheet
21 S&P 500 EPS Historical & Estimates for the Next Four Quarters
22 Historical S&P 500 PE Ratio Trailing & Forward
23 High-Yield Bond Spreads & Default Rate
24 10-Year Treasury Yield & 10-Year Treasury Yield Minus Core CPI
25 Investment-Grade Corporate Spread & Yield
26 Emerging Market Debt (EMD) Spread & Average Yield
27 30-Year Municipal Yields as a Percentage of Treasuries
28 Trade Weighted Dollar
29 Leading Economic Indicators
30 Treasury & Muni Yield Curves
Second Quarter Key Themes32 The Debt Ceiling
33 The Impact of the Earthquake in Japan on the Global Economy
34 Selling Municipal Bonds
35 China’s Economy: Inflation & China’s Central Bank
36 The Federal Reserves Next Steps
37 ISM & S&P 500 Performance
38 Classic Bubble Comparison
Table of Content
LPL FINANCIAL RESEARCH
4LPL Financial Member FINRA/SIPC
(Shaded area indicates recession)Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and publicconsumption, government outlays, investments and exports less imports that occur within a defined territory.
Tracking# 734362 Exp. (7/13)
Real Gross Domestic Product: Quantity Index
(Percent Change From Prior Quarter, Annual Rate)
1009080706050403020100Source: Bureau of Economic Analysis /Haver Analytics 07/08/11
8
4
0
-4
-8
8
4
0
-4
-8
%
Gross Domestic Product (GDP) Growth Rate
LPL FINANCIAL RESEARCH
5LPL Financial Member FINRA/SIPC
(Shaded area indicates recession)International investing involves special risks, such as currency fluctuation and political instability, and may not be suitable for all investors.An emerging market is a nation that is progressing toward becoming advanced, as shown by some liquidity in local debt and equity markets and the existence of some form of market exchange and regulatory body.Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.
Tracking# 734366 Exp. (7/13)
China: Gross Domestic Product at Current Prices & Exchange Rates
% Change - Year to Year Bil.US$
100908070605040302010099989796Source: China National Bureau of Statistics/Haver Analytics 07/08/11
30
25
20
15
10
5
China: Gross Domestic Product (GDP) Growth
LPL FINANCIAL RESEARCH
6LPL Financial Member FINRA/SIPC
(Shaded area indicates recession)Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and publicconsumption, government outlays, investments and exports less imports that occur within a defined territory.
Tracking# 734363 Exp. (7/13)
Federal Surplus/Deficit {-} as Percentage of GDP
Fiscal Year, %
10050095908580757065Source: Office of Management and Budget /Haver Analytics 07/08/11
2.5
0.0
-2.5
-5.0
-7.5
-10.0
Budget Deficit Percent of Gross Domestic Product (GDP)
LPL FINANCIAL RESEARCH
7LPL Financial Member FINRA/SIPC
(Shaded area indicates recession)The unemployment rate is the percentage of the total labor force that is unemployed but actively seeking employment and willing to work.
Tracking# 734364 Exp. (7/13)
Civilian Unemployment Rate: 16 yr +
Seasonally Adjusted
10050095908580757065605550
Source: Bureau of Labor Statistics /Haver Analytics 07/08/11
12
10
8
6
4
2
Unemployment Rate
LPL FINANCIAL RESEARCH
8LPL Financial Member FINRA/SIPC
(Shaded area indicates recession)Non-farm payroll employment is and economic indicator released by the U.S. Department of Labor. It is comprised of goods producing, construction and manufacturing companies.
Tracking# 734365 Exp. (7/13)
Change in Total Private Employment
Seasonally Adjusted, Thousands
1110090807060504030201Source: Bureau of Labor Statistics /Haver Analytics 07/08/11
500
250
0
-250
-500
-750
-1000
Non-farm Job Growth
LPL FINANCIAL RESEARCH
9LPL Financial Member FINRA/SIPC
(Shaded area indicates recession)Personal spending is the amount of expenses an individual has accounted for during the year. It includes mortgage payments, car payments, medical bills and shopping costs.
Tracking# 734368 Exp. (7/13)
Personal Income% Change - Year to Year Seasonally Adjusted Annual Rate, Bil.$
Personal Outlays% Change - Year to Year Seasonally Adjusted Annual Rate, Bil.$
1009080706050403020100Sources: Bureau of Economic Analysis /Haver Analytics 07/08/11
10.0
7.5
5.0
2.5
0.0
-2.5
-5.0
8
6
4
2
0
-2
-4
Wages and/or Personal Income/Personal Spending
LPL FINANCIAL RESEARCH
10LPL Financial Member FINRA/SIPC
(Shaded area indicates recession)
Existing home sales is a measure of the number and price of sales of single-family homes other than new constructions. It is considered an economic indicator of the availability and affordability of mortgages and real estate in the United States. It is also considered a lagging indicator as it tends to react after changes in mortgage interest rates. Existing home sales tend to rise after a decline in mortgage rates and fall when the opposite happens. The U.S. National Association of Realtors publishes existing home sales monthly.
Tracking# 734376 Exp. (7/13)
Existing 1-Family Home Sales: United StatesSeasonally Adjusted Annual Rate, Thousands
New 1-Family Houses Sold: United StatesSeasonally Adjusted Annual Rate, Thousands
10090807060504030201Sources: NAR, CENSUS /Haver 07/08/11
6750
6000
5250
4500
3750
3000
1400
1200
1000
800
600
400
200
Home Sales
LPL FINANCIAL RESEARCH
11LPL Financial Member FINRA/SIPC
(Shaded area indicates recession)The S&P/Chase-Shiller U.S. National Home Price Index tracks the growth in value of real estate by following the purchase price and resale value of homes that have undergone a minimum of two arm's-length transactions. The index is named for its creators, Karl Chase and Robert Shiller.
Tracking# 734373 Exp. (7/13)
S&P/Case-Shiller Home Price Index: U.S. National
% Change - Year to Year Not Seasonally Adjusted, Q1-00=100
1005009590Source: S&P, Fiserv, and MacroMarkets LLC /Haver Analytics 07/08/11
20
10
0
-10
-20
Home Prices
LPL FINANCIAL RESEARCH
12LPL Financial Member FINRA/SIPC
(Shaded area indicates recession)Vehicle sales is the number of domestically produced units of cars, SUVs, minivans, and light trucks that are sold. These sales are reported on the first business day of the month.
Tracking# 734374 Exp. (7/13)
Light Weight Vehicle Sales {Autos+Light Trucks}
Seasonally Adjusted Annual Rate, Mil. Units
1005009590Source: Bureau of Economic Analysis/Haver Analytics 07/08/11
22.5
20.0
17.5
15.0
12.5
10.0
7.5
Vehicle Sales
LPL FINANCIAL RESEARCH
13LPL Financial Member FINRA/SIPC
The Current Conditions Index is a weekly measure of the conditions that underpin our outlook for the markets and economy. The CCI provides real-time context and insight into the trends that shape our recommended actions to manage portfolios. This weekly index is not intended to be a leading index or predictive of where conditions are headed, but a coincident measure of where they are right now. We want to track the conditions in real-time to aid in investment decision making. Please see the weekly Current Conditions Index publication for specifics surrounding the make-up of the CCI.
Tracking# 734375 Exp. (7/13)
Current Conditions Index (CCI)
LPL FINANCIAL RESEARCH
14LPL Financial Member FINRA/SIPC
The Current Conditions Index (CCI) components are made up of 10 indicators that provided a weekly, real-time measure of the conditions in the economic and market environment. We standardized these components compared to their pre-crisis 10-year average, equally weighted their standardized scores, and aligned the resulting index with zero at the start of 2009. These components capture how the conditions are evolving from a wide range of angles. Each component is important and measures a different driver of the environment. Please see the weekly Current Conditions Index publication for specifics surrounding the make-up of the CCI.
Tracking# 734379 Exp. (7/13)
Current Conditions Index (CCI) Components
LPL FINANCIAL RESEARCH
15LPL Financial Member FINRA/SIPC
(Shaded area indicates recession)The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.
Tracking#734382 Exp. (07/13)
CPI-U: All Items% Change - Year to Year SA, 1982-84=100
CPI-U: All Items Less Food and Energy% Change - Year to Year SA, 1982-84=100
10050095908580757065Sources: Bureau of Labor Statistics /Haver Analytics 07/08/11
16
12
8
4
0
-4
Consumer Price Index (CPI)
LPL FINANCIAL RESEARCH
16LPL Financial Member FINRA/SIPC
(Shaded area indicates recession)The CRB Index is an unmanaged index, which cannot be invested into directly. Past performance is no guarantee of future results.The Commodity Research Bureau (CRB) Index is an index that measures the overall direction of commodity sectors. The CRB was designed to isolate and reveal the directional movement of prices in overall commodity trades. The fast price swings in commodities and currencies will result in significant volatility in an investor's holdings.
Tracking# 734380 Exp. (07/13)
KR-CRB Spot Commodity Price Index: All Commodities
1967=100
1005009590Source: Commodity Research Bureau /Haver Analytics 07/08/11
600
500
400
300
200
Commodity Prices
LPL FINANCIAL RESEARCH
17LPL Financial Member FINRA/SIPC
(Shaded area indicates recession)The ISM index is based on surveys of more than 300 manufacturing firms by the Institute of Supply Management. The ISM Manufacturing Index monitors employment, production inventories, new orders, and supplier deliveries. A composite diffusion index is created that monitors conditions in national manufacturing based on the data from these surveys.Purchasing Managers Index (PMI) is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.
Tracking# 734381 Exp. (07/13
ISM Manufacturing: PMI Composite Index
Seasonally Adjusted, 50+=Increasing
1005009590Source: Institute for Supply Management /Haver Analytics 07/08/11
75
70
65
60
55
50
45
40
35
30
25
Institute for Supply Management (ISM) Index
LPL FINANCIAL RESEARCH
18LPL Financial Member FINRA/SIPC
(Shaded area indicates recession)The University of Michigan Consumer Sentiment Index (MCSI) is a survey of consumer confidence conducted by the University of Michigan. The Michigan Consumer Sentiment Index (MCSI) uses telephone surveys to gather information on consumer expectations regarding the overall economy.
Tracking# 734383 Exp. (07/13)
University of Michigan: Consumer Sentiment
Not Seasonally Adjusted, Q1-66=100
1005009590Source: University of Michigan /Haver Analytics 07/08/11
120
100
80
60
40
Consumer Sentiment
LPL FINANCIAL RESEARCH
19LPL Financial Member FINRA/SIPC
(Shaded area indicates recession)The Federal Funds Rate is the interest rate at which a depository institution lends immediately available funds (balances at the Federal Reserve) to another depository institution overnight.
Tracking# 734384 Exp. (07/13)
Federal Open Market Committee: Fed Funds Target Rate
%
1005009590
Source: Federal Reserve Board /Haver Analytics 07/08/11
10
8
6
4
2
0
Federal Funds Rate with Futures Implied Rates Going Out One Year
LPL FINANCIAL RESEARCH
20LPL Financial Member FINRA/SIPC
(Shaded area indicates recession)The Federal Reserve Balance Sheet is the breakdown of the assets and liabilities held by the Federal Reserve.
Tracking# 734388 Exp. (07/13)
All Fed Res Banks: Total Assets
End Of Period, Bil.$
1005009590
Source: Federal Reserve Board /Haver Analytics 07/08/11
3000
2500
2000
1500
1000
500
0
Federal Reserve (Fed) Balance Sheet
LPL FINANCIAL RESEARCH
21LPL Financial Member FINRA/SIPC
Source: LPL Financial, Thomson Financial, Bloomberg data 7/11/11The S&P 500 is an unmanaged index, which cannot be invested into directly. Past performance is no guarantee of future results.The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.Earnings per share (EPS) is the portion of a company's profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company's profitability. Earnings per share is generally considered to be the single most important variable in determining a share's price. It is also a major component used to calculate the price-to-earnings valuation ratio.
Tracking# 734389 Exp. (07/13)
$0
$20
$40
$60
$80
$100
$120
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
S&P 500 EPS Historical & Estimates for the Next Four Quarters
LPL FINANCIAL RESEARCH
22LPL Financial Member FINRA/SIPC
Source: LPL Financial, Thomson Financial, Bloomberg data 7/11/11The S&P 500 is an unmanaged index, which cannot be invested into directly. Past performance is no guarantee of future results.The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.The P/E ratio (price-to-earnings ratio) is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share. It is a financial ratio used for valuation: a higher P/E ratio means that investors are paying more for each unit of net income, so the stock is more expensive compared to one with lower P/E ratio.
Tracking# 734387 Exp. (07/13)
0
5
10
15
20
25
30
35
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
S&P 500 Trailing PE Ratio
0
5
10
15
20
25
30
35
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
S&P 500 Forward PE Ratio
Historical S&P 500 PE Ratio Trailing & Forward
LPL FINANCIAL RESEARCH
23LPL Financial Member FINRA/SIPC
Source: Barclays, Moody’s, LPL Financial 6/30/11All Indices are unmanaged and cannot be invested into directly.High yield/junk bonds (grade BB or below) are not investment grade securities, and are subject to higher interest rate, credit, and liquidity risks than those graded BBB and above. They generally should be part of a diversified portfolio for sophisticated investors.Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and are subject to availability and change in price.High-Yield spread is the yield differential between the average yield of high-yield bonds and the average yield of comparable maturity Treasury bonds. The Default Rate This rate can be used in reference to two main things: The rate of borrowers who fail to remain current on their loans. It is a critical piece of information used by lenders to determine their risk exposure and economists to evaluate the health of the overall economy. And, The interest rate charged to a borrower when payments on a revolving line of credit are overdue. This higher rate is applied to outstanding balances in arrears in addition to the regular interest charges for the debt.
Tracking# 734390 Exp. (7/13)
High Yield Bond Spreads & Default Rate
LPL FINANCIAL RESEARCH
24LPL Financial Member FINRA/SIPC
(Shaded area indicates recession)The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of a fund shares is not guaranteed and will fluctuate.
Tracking# 734391 Exp. (7/13)
10-Year Treasury Note Yield at Constant Maturity
Average,%
11100908070605040302Source: U.S. Treasury /Haver Analytics 07/08/11
6
5
4
3
2
Real Yield
10-yr Treasury Yield Less Core CPI (YOY)
11100908070605040302Source: Haver Analytics 07/08/11
3.5
3.0
2.5
2.0
1.5
1.0
0.5
10-year Treasury yield & 10-year Treasury Yield Minus Core Consumer Price Index (CPI)
Period Average
LPL FINANCIAL RESEARCH
25LPL Financial Member FINRA/SIPC
Source: Barclays, LPL Financial 7/8/11Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and are subject to availability and change in price.Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity and redemption features.High-Yield spread is the yield differential between the average yield of high-yield bonds and the average yield of comparable maturity Treasury bonds.
Tracking# 734392 Exp. (7/13)
Investment-Grade Corporate Spread & Yield
LPL FINANCIAL RESEARCH
26LPL Financial Member FINRA/SIPC
Source: Barclays, LPL Financial 7/8/11The Barclays Global EM Bond Index is unmanaged and cannot be invested into directly. Past performance is no guarantee of future results.International and emerging markets investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.High-Yield spread is the yield differential between the average yield of high-yield bonds and the average yield of comparable maturity Treasury bonds.Yield is the income return on an investment. This refers to the interest or dividends received from a security and is usually expressed annually as a percentage based on the investment's cost, its current market value or its face value.
Tracking# 734393 Exp. (7/13)
Emerging Market Debt (EMD) Spread & Yield
LPL FINANCIAL RESEARCH
27LPL Financial Member FINRA/SIPC
(Shaded area indicates recession)Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply.Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and are subject to availability and change in price.Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of a fund shares is not guaranteed and will fluctuate.An obligation rated 'AAA' has the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is extremely strong.
Tracking# 734394 Exp. (7/13)
30-year AAA Municipal Yield as a Percentage of Treasuries
111009080706050403Source: Haver Analytics 07/08/11
225
200
175
150
125
100
75
30-year Municipal Yields as a Percentage of Treasuries
LPL FINANCIAL RESEARCH
28LPL Financial Member FINRA/SIPC
(Shaded area indicates recession)Trade weighted dollar is a representation of the foreign currency price of the US dollar or the export value of the US dollar.
Tracking# 734395 Exp. (7/13)
Nominal Trade-Weighted Exch Value of US$ vs Major Currencies
Mar-73=100
1005009590858075Source: Federal Reserve Board /Haver Analytics 07/08/11
160
140
120
100
80
60
Trade Weighted Dollar
LPL FINANCIAL RESEARCH
29LPL Financial Member FINRA/SIPC
(Shaded area indicates recession)ECRI's Weekly Leading Index (WLI) is a composite index constructed of seven USA weekly economic series (M2, JOC-ECRI industrial materials price index, initial unemployment insurance claims, mortgage applications, S&P 500, 10-yr Treasury bond yield, and bond quality spread). The limited availability of weekly data constrains the number of variables in the composite index, but this has not hurt the WLI's predictive power.
Tracking# 734396 Exp. (7/13)
ECRI Weekly Leading Index
% Change - Year to Year 1992=100
100500959085807570Source: Haver Analytics 07/12/11
30
20
10
0
-10
-20
-30
Leading Economic Indicators
LPL FINANCIAL RESEARCH
30LPL Financial Member FINRA/SIPC
Source: Factset 07/08/11An obligation rated 'AAA' has the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is extremely strong.Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply.Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of a fund shares is not guaranteed and will fluctuate.Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and are subject to availability and change in price.Yield Curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, five-year and 30-year U.S. Treasury debt. This yield curve is used as a benchmark for other debt in the market, such as mortgage rates or bank lending rates. The curve is also used to predict changes in economic output and growth.
Tracking# 734397 Exp. (7/13)
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
Yie
ld
Maturity
US Treasury Yield Curve
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
Yie
ld
Maturity
AAA Municipal GO
Treasury & Muni Yield Curves
Second Quarter Key Themes
LPL FINANCIAL RESEARCH
32LPL Financial Member FINRA/SIPC
(Shaded area indicates recession)The Statutory Debt Limit was established under the Second Liberty Bond Act of 1917 that limits the amount of public debt that can beoutstanding. The Statutory Debt Limit, or debt ceiling, prevents the U.S. Treasury from issuing new debt once the limit has been reached. However, the debt limit can be raised, and has often been raised, with approval from the U.S. Congress.
Tracking #74238 Exp. (07/13)
Public Debt Outstanding: Statutory Debt LimitEnd Of Period, Tril.$
Treasury Securities OutstandingTril.$
11100908070605040302Sources: U.S. Treasury /Haver Analytics 07/08/11
15.0
12.5
10.0
7.5
5.0
The Debt Ceiling Has Been Raised Numerous Times Over the Past 25 Years
LPL FINANCIAL RESEARCH
33LPL Financial Member FINRA/SIPC
Source: Bloomberg 07/11/11Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.
Tracking #742384 Exp. (07/13)
25
30
35
40
45
50
55
60
65Ja
n-04
Apr
-04
Jul-0
4O
ct-0
4Ja
n-05
Apr
-05
Jul-0
5O
ct-0
5Ja
n-06
Apr
-06
Jul-0
6
Oct
-06
Jan-
07A
pr-0
7Ju
l-07
Oct
-07
Jan-
08A
pr-0
8Ju
l-08
Oct
-08
Jan-
09A
pr-0
9Ju
l-09
Oct
-09
Jan-
10A
pr-1
0Ju
l-10
Oct
-10
Jan-
11A
pr-1
1
Japanese Purchasing Managers Index(Index Greater Than 50, Japanese Manufacturing ExpandingIndex Less Than 50, Japanese Manufacturing Contracting )
Markets Probably Underestimated the Impact of the Earthquake in Japan on the Global Economy, but Now Conditions in Japan Have Begun to Improve Noticeably (Japan GDP)
LPL FINANCIAL RESEARCH
34LPL Financial Member FINRA/SIPC
0%
50%
100%
150%
200%
250%
300%
Ave
rage
Sta
te
Cal
ifor
nia
Illin
ois
Uni
ted
Sta
tes
Por
tuga
l
Gre
ece
Japa
n
Debt to GDP
Source: LPL Financial, Center for Budget and Policy Research, Bureau of Economic Analysis 2/07/11Debt-to-GDP is a measure of a country's federal debt in relation to its gross domestic product (GDP). By comparing what a country owes and what it produces, the debt-to-GDP ratio indicates the country's ability to pay back its debt. The ratio is a coverage ratio on a national level. Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply.
Tracking #742385 Exp. (07/13)
Selling Municipal Bonds
LPL FINANCIAL RESEARCH
35LPL Financial Member FINRA/SIPC
As China’s Economy has Cooled, Inflation has Heated UP, Prompting Higher Rates From China’s Central Bank
China: Real GDP: Year-to-Year Percent Change%, (left scale)
China: Consumer Price IndexNot Seasonally Adjusted, year/year % change, (right scale)
1110090807060504030201Sources: China National Bureau of Statistics /Haver Analytics 07/08/11
14
12
10
8
6
10
8
6
4
2
0
-2
The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.
Tracking # 742389 Exp. (07/13)
LPL FINANCIAL RESEARCH
36LPL Financial Member FINRA/SIPC
Step 1 June 2011 End of QE2: Fed stops buying Treasuries to expand its balance sheet
Step 2 Second half 2011 Fed maintains size of balance sheet by reinvesting interest payments and maturing debt
Step 3 2012 and beyond Fed begins to not reinvest allowing the balance sheet to start to contractFed begins to hike interest ratesFed begins selling bonds
Quantitative Easing is a government monetary policy occasionally used to increase the money supply by buying government securities or other securities from the market. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity.
Tracking #742390 Exp. (07/13)
The Federal Reserve’s Next Steps: LPL Financial Research’s take on the Potential Process for Unwinding QE
LPL FINANCIAL RESEARCH
37LPL Financial Member FINRA/SIPC
Source: LPL Financial, Bloomberg data 6/1/11The ISM index is based on surveys of more than 300 manufacturing firms by the Institute of Supply Management. The ISM Manufacturing Index monitors employment, production inventories, new orders, and supplier deliveries. A composite diffusion index is created that monitors conditions in national manufacturing based on the data from these surveys.The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries and cannot be invested into directly.. Past performance is no guarantee of future results.
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-60%
-50%
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-20%
-10%
0%
10%
20%
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40%
50%
30
35
40
45
50
55
60
65
1997 1999 2001 2003 2005 2007 2009 2011
ISM S&P 500 YOY%
ISM & S&P 500 Performance Moves in Step
LPL FINANCIAL RESEARCH
38LPL Financial Member FINRA/SIPC
Source: LPL Financial, Bloomberg Data 5/9/11Bubble describes an economic cycle characterized by rapid expansion followed by a contraction.The fast price swings in commodities and currencies will result in significant volatility in an investor's holdings. Precious metal investing is subject to substantial fluctuation and potential for loss.
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-200%
0%
200%
400%
600%
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1200%
0 1 2 3 4 5 6 7 8 9 10 11 12
NASDAQ 3/16/1990
Oil Price 6/26/1998
S&P 500 Homebuilders 6/30/1995
Gold Price 1/4/2002
Year of Bubble
Classic Bubble Comparison
LPL FINANCIAL RESEARCH
39LPL Financial Member FINRA/SIPC
The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.
This research material has been prepared by LPL Financial.
The LPL Financial family of affiliated companies includes LPL Financial and UVEST Financial Services Group, Inc., each of which is a member of FINRA/SIPC.
To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial is not an affiliate of and makes no representation with respect to such entity.
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