Week Ended February 22, 2013

Fed worries bring a stop to string of gains

Worries over a change in Federal Reserve policy and some mixed economic data brought an end to the S&P 500's streak of seven weekly gains, but not before the Dow and S&P set new post-financial crisis highs and came within striking distance of the records they set in 2007. The technology-oriented Nasdaq and smaller-cap indexes declined more than the S&P, while the Dow managed a modest gain.

M&A activity helps stocks start the week on a strong note

Stocks got off to a good start for the week after trading resumed on Tuesday following the Presidents' Day holiday (observed as Washington's Birthday by the New York Stock Exchange). Investors were encouraged by news of more corporate merger and acquisition activity, including rumors, later confirmed, of a high-profile merger between OfficeMax and Office Depot, two of the nation's largest office supplies stores. The Dow briefly reached above 14,050, within roughly 1.6% of its all-time high of 14,280.

Signs of early end to Fed stimulus worries investors and reverses gains

Markets gave up these gains on Wednesday, however, as investors reacted nervously to signs that some Federal Reserve officials favor reducing monetary stimulus in the form of asset purchases before unemployment reaches acceptable levels. In December, the Fed had boosted investor sentiment and surprised most observers by setting specific targets for the unemployment rate and inflation—6.5% and 2.5%, respectively—before it would raise short-term interest rates.

Mixed U.S. economic data may have also caused investors to pull back. Weekly jobless claims increased, and housing starts declined in January. Housing permits increased, however, suggesting that building will pick up in the spring. T. Rowe Price economists believe that the housing sector will continue to recover in 2013, although its contribution to economic growth will be modest.

Could housing recovery benefit apartment REITs?

Signs of a housing recovery have weighed lately on apartment-oriented real estate investment trusts, or REITs, because some investors expect apartment demand to decline as more Americans choose home ownership. David Lee, the manager of T. Rowe Price's real estate portfolios, believes instead that a housing recovery would bolster overall economic growth and boost apartment demand by encouraging household formation. Some newly employed young people, for example, will not be able to afford to buy a home and will choose to rent rather than to buy.

U.S. Stocks1

Index2

Friday's Close

Week's Change

% Change
Year-to-Date

DJIA

14000.57

18.81

6.84%

S&P 500

1515.60

-4.19

6.27%

NASDAQ Composite

3161.82

-30.21

4.71%

S&P MidCap 400

1102.84

-12.55

8.08%

Russell 2000

914.65

-8.55

7.69%

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.