Week Ended January 11, 2013
U.S. stocks build on strong
gains
After a pullback on Monday
and Tuesday, stocks finished the week higher as they extended the previous
week's rally. The S&P 500 slipped from a five-year high reached on
Thursday, while the smaller-cap indexes moved further into
record territory.
The U.S. corporate earnings
season kicked off after Tuesday's markets close, when metals giant Alcoa
reported a fourth-quarter profit despite continued low prices for aluminum. The
report was largely in line with analysts' expectations and appeared to ease
investor worries that corporate profit growth had slowed considerably toward
the end of 2012 in the face of the "fiscal cliff" and other
obstacles. Mixed fourth-quarter results from a major bank drained some of the
optimism at week's end. Major financial firms have been cutting jobs and
expenses in response to new regulations and declining trading profits.
Good global economic data
also boosted sentiment and helped drive world markets to their highest levels
in 20 months. On Thursday, China reported surprisingly strong exports in
December, indicating that the country's recovery may be quickening, while a
separate gauge of credit showed that nonbank financing surged last month.
Despite these signs of recovery, we believe that China is on track for
gradually slowing growth over the next few years as the government shifts to a
more consumption-driven economy. Investors were also encouraged that the
European Central Bank decided unanimously to leave interest rates unchanged.
Finally, investors continued to welcome the prospect of more fiscal and
monetary stimulus in Japan, where a new government has promised to
increase growth.
Positive outlook for U.S.
stocks once fiscal problems are resolved
Although 2013 has gotten
off to a good start, we expect that unresolved fiscal problems in the U.S. will
continue to affect stock market performance in the coming months. U.S.
lawmakers skirted the fiscal cliff, but they still have to negotiate
across-the-board spending cuts and an agreement to raise the nation's debt
ceiling, which will create more uncertainty into the spring. At the same time,
we expect the U.S. economy and labor market will continue to gradually
strengthen. Once the nation's fiscal outlook becomes more settled, we believe
investors will refocus on the economy's improving fundamentals, which would be
supportive for U.S. stocks.
|
U.S. Stocks1 |
|||
|
Index2 |
Friday's Close |
Week's Change |
% Change |
|
DJIA |
13488.43 |
53.22 |
2.93% |
|
S&P
500 |
1472.05 |
5.58 |
3.22% |
|
NASDAQ
Composite |
3125.63 |
23.97 |
3.51% |
|
S&P
MidCap 400 |
1057.57 |
1.84 |
3.64% |
|
Russell
2000 |
880.97 |
1.48 |
3.72% |
This chart
is for illustrative purposes only and does not represent the performance of any
specific security. Past performance cannot guarantee future results.
1Source of data Reuters, obtained through Yahoo! Finance Closing
data as of 4 p.m. ET.
2The Dow Jones Industrial Average and the Standard & Poor's 500
Stock Index of blue chip stocks, the Standard & Poor's MidCap 400 Index,
and the Russell 2000 Index are unmanaged indexes representing various segments
by market capitalization of the U.S. equity markets. The Nasdaq Composite is an
unmanaged index representing the companies traded on the Nasdaq stock market and
the National Market System.
___________
Week Ended January 11, 2013
Treasuries and corporates
stabilize, while municipals and high yield gather strength
Following their sharp
increase in the first week of the year, Treasury yields moved lower as concerns
about the budget battle in Washington competed with strength in the equity
market and resilient Chinese economic data. The investment-grade corporate
market generally traded sideways as a substantial increase in new issuance, led
by financial companies, was met with very strong investor demand. Earnings
season kicked off with several large companies reporting strong fourth-quarter
results. The municipal market firmed up this week. Liquidity slowly returned as
a better technical situation emerged in January. Demand is back while new
issuance has slowed. As expected, the high yield new issues market picked up to
meet the strong demand. Demand for new issues is significant because secondary
market supply remains limited. More than 80% of the asset class is now trading
above par value, leading us to believe that coupon-like returns are probable
for 2013.
Spanish bonds rally, but
emerging markets bonds decline due to weakness in South America
A closely watched Spanish
bond auction was successful, bringing the yield on the country's 10-year bonds
below 5% for the first time since March. Emerging markets debt gave up some
recent gains this week, mostly on poor performance by certain volatile Latin
American government bonds. Except for Thursday, the secondary market
experienced light trading volumes. Argentina performed poorly amid the release
of pessimistic outlooks from U.S. banks and some profit-taking following the
prior week's rally. The primary market was quite active with multiple deals in
both the sovereign and corporate markets.
Gradual pickup in U.S.
growth likely, but widening trade deficit could hurt
The U.S. balance of trade
widened unexpectedly to $48.7 billion in November, due primarily to a surge in
imports. Imports of goods and services rose $8.4 billion, while U.S exports
increased only $1.7 billion despite the weak U.S. dollar. A consensus estimate
by Bloomberg had expected the balance of trade to tighten by $6.6 billion. In
just one month, the increase in imports amounted to 62% of the previous seven
months' decline. T. Rowe Price expects U.S. economic growth to
gradually gain momentum throughout this year, supporting further gains in
imports in the months ahead. After adjusting for inflation, the U.S. trade
deficit stands at its widest level since the beginning of the recovery and
could detract from fourth-quarter economic growth.
|
U.S. Treasury Yields1 |
||
|
Maturity |
January 11, 2013 |
January 4, 2013 |
|
2-Year |
0.24% |
0.27% |
|
10-Year |
1.87% |
1.91% |
|
30-Year |
3.04% |
3.10% |
This table is for
illustrative purposes only. Past performance cannot guarantee future
results.
1Source of data: Bloomberg.com, as of 4
p.m. ET Friday, January 11, 2013.
___________
Week Ended January 4, 2013
International
Stocks
Foreign stock markets closed higher for the week ending January
04, 2013 with the broad international measure, the MSCI EAFE Index (Europe,
Australasia, and Far East), gaining 1.71%.
|
|
||
|
Region/Country |
Week's Return |
% Change Year-to-Date |
|
EAFE |
1.71% |
1.82% |
|
Europe ex-U.K. |
1.78% |
1.81% |
|
Denmark |
2.08% |
2.37% |
|
France |
1.60% |
1.34% |
|
Germany |
0.77% |
1.05% |
|
Italy |
2.74% |
3.03% |
|
Netherlands |
1.53% |
1.38% |
|
Spain |
2.87% |
2.55% |
|
Sweden |
2.27% |
2.18% |
|
Switzerland |
2.01% |
2.25% |
|
United
Kingdom |
2.07% |
1.91% |
|
Japan |
1.18% |
1.62% |
|
AC
Far East ex-Japan |
2.30% |
2.21% |
|
Hong Kong |
2.63% |
2.59% |
|
Korea |
1.25% |
1.25% |
|
Malaysia |
1.45% |
0.57% |
|
Singapore |
0.50% |
0.93% |
|
Taiwan |
1.52% |
1.52% |
|
Thailand |
1.67% |
1.67% |
|
EM
Latin America |
3.24% |
3.32% |
|
Brazil |
3.31% |
3.47% |
|
Mexico |
3.63% |
3.65% |
|
Argentina |
5.29% |
4.44% |
|
EM
(Emerging Markets) |
2.16% |
2.16% |
|
Hungary |
1.10% |
1.45% |
|
India |
1.41% |
1.40% |
|
Israel |
-0.56% |
-0.73% |
|
Russia |
0.78% |
1.11% |
|
Turkey |
1.46% |
1.87% |
International
Bond Markets
International bond markets in developed countries were lower
this week, with the J.P. Morgan Global Government Bond Less U.S. Index losing
-2.11%.
|
|
||
|
Region/Country |
Week's Return |
% Change Year-to-Date |
|
Developed
Markets |
-2.11% |
-1.89% |
|
Europe |
|
|
|
Denmark |
-3.21% |
-2.94% |
|
France |
-2.49% |
-2.23% |
|
Germany |
-2.89% |
-2.62% |
|
Italy |
-0.09% |
0.18% |
|
Spain |
-0.15% |
0.12% |
|
Sweden |
-1.63% |
-1.71% |
|
United
Kingdom |
-3.05% |
-3.67% |
|
Japan |
-2.38% |
-1.96% |
|
Emerging
Markets |
0.26% |
0.17% |
|
Argentina |
3.05% |
2.51% |
|
Brazil |
-0.86% |
-0.88% |
|
Bulgaria |
-0.20% |
-0.22% |
|
Russia |
-0.23% |
-0.25% |
International
Currency Markets
On the currency front, the U.S. dollar was stronger against the
major currencies for the week.
|
|
|||
|
Currency |
Close |
Week's Return |
% Change |
|
Japanese
yen |
88.040 |
2.21% |
1.79% |
|
Euro |
1.30451 |
1.33% |
1.05% |
|
British
pound |
1.60371 |
0.73% |
1.34% |
1U.S. dollars per national currency
unit.
Sources: Foreign stock markets and currency sections are from
Rimes Technologies, using MSCI data. International bond markets are from J.P.
Morgan.
Note: All returns are in U.S. dollars. All bond indices are J.P.
Morgan. All stock indices are Morgan Stanley Capital International (MSCI).
|
Equity Indices |
|
|
EAFE: |
MSCI
Europe, Australasia, and Far East Index |
|
Europe
Ex-U.K.: |
MSCI
Europe ex-U.K. Index |
|
Far East
Ex-Japan: |
MSCI AC
Far East ex-Japan Index |
|
Latin
America: |
MSCI
Emerging Markets Latin America Index |
|
Emerging
Markets: |
MSCI
Emerging Markets Index |
|
Bond Indices |
|
|
Developed
Markets: |
J.P.
Morgan Global Government Bond Less U.S. Index |
|
Emerging
Markets: |
J.P.
Morgan Emerging Markets Bond Index Plus |
All charts are for illustrative purposes only and do not represent the
performance of any specific security. Past performance cannot guarantee
future results.