Week Ended February 8, 2013

Stocks extend winning streak with slight gains

The broad averages managed modest gains for the week despite a sharp pullback on Monday. Investors continued to be generally encouraged by earnings reports and economic data. The technology-oriented Nasdaq Composite fared a bit better than other indexes, as tech shares were driven by better-than-expected profits, new product releases, and buyout activity.

Renewed European worries cause pullback…

The widely watched Dow Jones Industrial Average experienced its first triple-digit decline of the year on Monday. While profit taking following the recent rally may have been partly to blame—the S&P 500 has risen more than 10% from its November lows—some discouraging news from Europe also weighed on sentiment. Allegations of political corruption in Spain threatened to undermine the ruling party's ability to push through unpopular austerity measures. In Italy, investors have reacted negatively to signs that former Prime Minister Silvio Berlusconi might regain control in upcoming elections, which many believe would put an end to fiscal reforms. Waning fears about the European debt crisis have been a significant factor driving the global equity markets higher in recent months.

…but signs that Asia is gaining momentum help stocks stage a comeback

Signs that economic growth was gaining traction in Asia helped stocks recover later in the week. On Friday, China reported that its exports had expanded by 25% in January from a year earlier, while imports had grown even faster. While Japan's economy remains considerably more subdued, hopes are rising that more aggressive monetary and fiscal policy will shake it from its doldrums. Japanese shares briefly reached four-year highs after the current head of the central bank offered to step down early, presumably clearing the way for further monetary easing. Anh Lu, an equity manager in T. Rowe Price's Hong Kong office, believes that economic growth across Asia will stabilize in 2013, and earnings expectations have been reset at more reasonable levels.

Are U.S. firms better prepared to compete in global markets?

Signs of a sturdier global economy were present in U.S. data as well. On Friday, the Commerce Department reported that the U.S. trade gap had narrowed more than previously reported, thanks in part to increased exports. While the rise is a signal of growing global demand, T. Rowe Price economists note that further gains would also suggest the growing competitiveness of U.S. manufacturers on world markets.

U.S. Stocks1

Index2

Friday's Close

Week's Change

% Change
Year-to-Date

DJIA

13991.58

-18.21

6.77%

S&P 500

1516.91

3.74

6.36%

NASDAQ Composite

3195.54

16.44

5.83%

S&P MidCap 400

1108.47

6.88

8.63%

Russell 2000

913.55

2.36

7.56%

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.