Week Ended March 22, 2013

Another (albeit smaller) shock from Europe sends stocks lower

Another debt crisis in Europe sent stocks lower for the week, but the relatively small size of Cyprus, the economy at the center of this storm, helped limit the damage. The Dow briefly pierced the all-time high it had established the previous week, while the S&P 500 remained just short of record territory.

Cyprus's "bail in" plan worries investors

Stocks fell sharply to start the week after Cyprus announced that all its banks had closed and that it was considering a plan to tax bank deposits in order to receive emergency funds from the European Central Bank, IMF, and European Commission. While the problems in Cyprus's banking system were not unknown, investors were discouraged by the unpopular plan to "bail in" bank depositors, which some worried would provoke further capital flight once banks reopened. In any event, Cypriot officials backed away from the plan in response to domestic protests as well as resentment from Russian depositors, which left European policymakers scrambling to design another rescue package.

Fed remarks boost sentiment at midweek

Stocks recovered some of their losses at midweek. Investors seemed to be encouraged by the Federal Reserve's decision to maintain the central bank's ultra-accommodative monetary stance despite recent gains in the housing and labor markets. Investors were also glad to hear Fed Chairman Bernanke state his opinion that recent stock market gains did not exhibit characteristics of a market bubble, saying that "we don't see anything that's out of line with historical patterns."

Corporate balance sheets also support valuations

T. Rowe Price managers believe that equity valuations appear reasonable in relation to fixed income and cash alternatives. They also note that exceptionally strong corporate balance sheets also provide support to stock prices. In his press conference following the Fed's policy meeting Wednesday, Fed Chairman Bernanke echoed that view, noting the very high level of national income going to corporate profits.

U.S. Stocks1

Index2

Friday's Close

Week's Change

% Change
Year-to-Date

DJIA

14512.03

-2.08

10.74%

S&P 500

1556.89

-3.83

9.16%

NASDAQ Composite

3245.00

-4.07

7.47%

S&P MidCap 400

1137.91

-3.98

11.51%

Russell 2000

945.35

-6.98

11.30%

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.