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Week Ended May 4, 2012

Stocks fall on tepid jobs data

Stocks moved lower for the week amid indications that the economic recovery had slowed somewhat in the early spring. Stocks headed sharply lower on Friday following a government report showing that employers added only 115,000 jobs to payrolls in April, the slowest pace of expansion since last October. The unemployment rate ticked down to 8.1% from 8.2%, but the drop mainly reflected a decline in the labor force participation rate—a sign that many of the long-term unemployed have stopped looking for work. T. Rowe Price economists note that the soft reading was not surprising enough to force a change in Federal Reserve policy, however. February and March data were revised upward, and, to date, the labor market pullback following stronger winter gains has been milder than it was a year ago. Weekly jobless claims also receded, suggesting that improved labor market indicators might lie ahead.

U.S. manufacturing continues to strengthen

One hopeful detail in the payroll report was the continuing expansion in manufacturing employment. On Monday, stocks rose in response to an increase in the Institute for Supply Management's (ISM) index of manufacturing activity. The growing competitiveness of U.S. manufacturing has encouraged some T. Rowe Price managers, along with other observers, to argue that the U.S. is in the process of "reindustrialization." Rising wages in Asia, the decline of the U.S. dollar against other currencies, and increasingly stressed and extended supply lines have encouraged some firms to relocate production back to the U.S., where productivity is high and energy costs have fallen. The rebound in the services sector has been more muted, however. A decline in the ISM's services index weighed on markets when the data were released on Thursday.

More worrisome signals from Europe

While U.S. economic data were somewhat disappointing, the situation in Europe appeared substantially worse. Spain announced that it had experienced a second consecutive quarter of economic contraction, a common indicator of a recession. Several other European economies have also recently entered recession, as government efforts to raise taxes and cut spending to reduce debt loads have weighed heavily on growth. Although U.S. markets have not declined in lockstep with European markets, the struggles in Europe raise concerns about the prospects for U.S. exports and the potential for financial contagion to jump the Atlantic.

U.S. Stocks¹
Index²	Friday's Close	Week's Change	% Change Year-to-Date
DJIA	13038.27	-190.04	6.72%
S&P 500	1369.10	-34.26	8.87%
NASDAQ Composite	2956.34	-112.86	13.48%
S&P MidCap 400	965.80	-33.76	9.82%
Russell 2000	792.42	-33.15	6.98%

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.

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U.S. Bond Market

Week Ended May 4, 2012

Disappointing April jobs report boosts Treasuries

Treasury yields declined from last week as a weaker-than-expected April jobs report raised fears that the U.S. recovery is losing momentum. The yield on the 10-year note—a benchmark for U.S. consumer and corporate borrowing—fell to a three-month low of 1.87% after the jobs report on Friday morning, before settling at 1.88%. The 10-year yield has now hovered below 2.00% for 16 straight days—the longest stretch in over three months, according to Bloomberg—reflecting anxiety about the health of the U.S. and global economies.

U.S. employers added 115,000 jobs in April after an increase of 154,000 in March, the Labor Department said Friday. April's jobs growth trailed most economists' forecasts, which had called for gains of at least 160,000 jobs. The unemployment rate fell to 8.1% from 8.2% in March, but the decline was attributed to people dropping out of the workforce. Despite the weak employment report in April, we believe some pullback in jobs growth was inevitable given the strong reports from last December to February. We do not expect that the Federal Reserve will consider additional stimulus measures to boost the economy, with inflation running near the Fed's 2% target.

Gloomy economic news from Europe also supported Treasuries. On Monday, Spain reported its economy contracted in the first quarter, putting it back into recession for the second time since 2009. Other reports showed that unemployment in the eurozone rose to 10.9% in March, a 15-year high, and a gauge of manufacturing activity in Europe shrank in April for the ninth straight month. The latest data seemed to indicate that Europe's recession is deepening. On Thursday, the European Central Bank kept interest rates unchanged at a record low 1%.

Resilient risk appetite lifts high yield and emerging markets debt

Credit-sensitive sectors were on track to rise for the week. As of Thursday's market close, high yield and emerging markets bonds advanced, while investment-grade corporate and municipal bonds made slimmer gains. The high yield market continues to benefit from strong demand, low default expectations, and generally strong balance sheets. Municipals received a boost from the sale of $1.8 billion in general obligation debt from Illinois. The state had to provide a small yield concession to entice investors, but the sale resulted in strong demand. Given Illinois' weak fiscal profile, it appears investors are willing to take on risk for additional yield amid the low interest rate environment.

U.S. Treasury Yields¹
Maturity	May 4, 2012	April 27, 2012
2-Year	0.25%	0.26%
10-Year	1.88%	1.93%
30-Year	3.07%	3.12%

This table is for illustrative purposes only. Past performance cannot guarantee future results.

¹Source of data: Bloomberg.com, as of 4 p.m. ET Thursday, May 4, 2012.

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International Market

Week Ended April 27, 2012

International Stocks

Foreign stock markets closed higher for the week ending April 27, 2012 with the broad international measure, the MSCI EAFE Index (Europe, Australasia, and Far East), gaining 0.9%.


Region/Country	Week's Return	% Change Year-to-Date
EAFE	0.90%	9.22%
Europe ex-U.K.	1.34%	9.08%
Denmark	-1.92%	20.96%
France	3.09%	7.45%
Germany	1.38%	18.53%
Italy	3.39%	1.13%
Netherlands	1.04%	5.44%
Spain	2.03%	-13.03%
Sweden	0.31%	12.65%
Switzerland	-0.35%	9.99%
United Kingdom	0.97%	9.75%
Japan	0.43%	6.98%
AC Far East ex-Japan	-0.06%	12.58%
Hong Kong	-1.42%	12.84%
Korea	1.44%	14.67%
Malaysia	-0.69%	6.94%
Singapore	1.12%	20.16%
Taiwan	0.39%	9.06%
Thailand	0.68%	22.62%
EM Latin America	-0.27%	10.30%
Brazil	-1.29%	6.90%
Mexico	1.59%	14.37%
Argentina	-1.52%	-34.33%
EM (Emerging Markets)	-0.14%	12.04%
Hungary	8.73%	23.22%
India	-2.88%	13.33%
Israel	0.52%	10.71%
Russia	-1.33%	15.33%
Turkey	2.53%	25.05%

International Bond Markets

International bond markets in developed countries were higher this week, with the J.P. Morgan Global Government Bond Less U.S. Index gaining 1.26%.


Region/Country	Week's Return	% Change Year-to-Date
Developed Markets	1.26%	0.51%
Europe
Denmark	0.40%	1.02%
France	1.22%	3.62%
Germany	0.47%	3.33%
Italy	0.57%	11.23%
Spain	0.90%	0.92%
Sweden	-0.36%	1.28%
United Kingdom	1.06%	2.89%
Japan	1.72%	-3.55%
Emerging Markets	0.32%	5.68%
Argentina	2.09%	-0.58%
Brazil	-0.13%	3.55%
Bulgaria	0.14%	3.50%
Russia	0.40%	5.50%

International Currency Markets

On the currency front, the U.S. dollar was weaker against the major currencies for the week.


Currency	Close (April 27, 2012)	Week's Return (U.S. $)	% Change Year-to-Date (U.S. $)
Japanese yen	80.450	-1.44%	4.36%
Euro	1.326¹	-0.39%	-2.14%
British pound	1.6238¹	-0.75%	-4.48%

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.