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August 5, 2013 - Jobs, Gross Domestic Product and the Fed

| August 05, 2013

Markets closed out another positive week, driven upward by a better-than-expected GDP report and a reminder that the Fed won't be pulling the plug on bond purchases this month. Nervousness ahead of a Fed policy meeting and the monthly jobs report contributed to volatility, but the rally pushed the S&P 500 to a new historic high.[1] 

The big economic news last week was the July jobs report and a first look at second quarter GDP. The initial GDP report shows that the economy grew 1.7% in Q2, handily beating economists' estimates of 1-1.1% growth. A buildup of business inventories was enough to offset the effects of sequestration, thus accounting for the surprising jump. On the whole, we view the report as a positive, showing that the economic recovery is gaining momentum.[2]

The jobs report was a mixed bag; hiring slowed in July, with the addition of only 162,000 new jobs, the smallest gain in four months. However, July employment numbers are notoriously unreliable, due to seasonal factors like factory closings. All things considered, it is worth noting that the month's job gains were enough to drive the headline unemployment rate down to 7.4%. These mixed signals could make the Fed cautious about tapering bond purchases too soon, and some analysts now believe it could be October or December before we see tapering begin.[3]

The Federal Reserve FOMC met last week but announced no policy changes, meaning that current quantitative easing programs will continue for the near future. The meeting announcement (which provides a brief summary of the meeting) offered little additional guidance about future Fed moves.[4] In a separate interview, a top Fed official stated that the recent drop in the unemployment rate took the country one step closer to the 7% unemployment threshold set by Fed chairman Ben Bernanke as the point around which the central bank would likely end its QE bond purchases.[5]

With earnings season wrapping up, a light calendar of economic data, and a few solid weeks of growth behind us, it's possible that we may see a short-term decline as traders take profits and wait for news from the Fed. In any case, we hope you enjoy your week, and that you don't spend too much time focusing on every Fed announcement and piece of economic news. In the words of Edmund Burke, "If we command our wealth, we shall be rich and free; if our wealth commands us, we are poor indeed."

Monday: ISM Non-Mfg. Index
Tuesday: International Trade
Wednesday: EIA Petroleum Status Report
Thursday: Jobless Claims

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Diversification does not guarantee profit nor is it guaranteed to protect assets

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.

The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.

The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.

The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

Google Finance is the source for any reference to the performance of an index between two specific periods.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Past performance does not guarantee future results.

You cannot invest directly in an index.

Consult your financial professional before making any investment decision.

Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

These are the views of Platinum Advisor Marketing Strategies, LLC, and not necessarily those of the named representative, Broker dealer or Investment Advisor, and should not be construed as investment advice. Neither the named representative nor the named Broker dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

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