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Week Ended May 25, 2012

G-8 summit boosts stocks

Stocks reversed a string of three weekly declines as some hopeful signs emerged from Europe and China, and as U.S. economic data remained generally favorable. Mid- and small-cap stocks enjoyed the biggest rebound. The week started off on a strong note, with the technology-heavy Nasdaq seeing its biggest gain in months. Over the weekend, leaders of the G-8 group of the world's largest industrial nations affirmed their desire for Greece to remain a part of the eurozone. Investors were also relieved to hear China's premier promise policy changes to avoid a slowdown in the world's second-largest economy.

Fears of a "Grexit" resurface midweek

Optimism about Greece diminished as the week progressed, however. Former Prime Minister Papademos indicated that the country was making preparations to leave the euro, and markets fell sharply in early trading on Wednesday after he warned that doing so would have "catastrophic" consequences for Greece. The euro also fell sharply in response, reaching its lowest level against the U.S. dollar since the summer of 2010.

U.S. economic data are still strong, but caution remains

Repeating a pattern of recent weeks, generally good U.S. economic data helped cushion the market from disappointing European news. Weekly jobless claims fell again, and durable goods orders rose in April, defying the expectations of many. T. Rowe Price economists note, however, that a decline in orders for capital goods excluding aircraft and defense continued a year-long sideways trend. Businesses may be hesitant to ramp up spending given the troubles in Europe and the prospect for fiscal contraction in the U.S. at the end of the year if scheduled tax increases and automatic spending cuts are not delayed. Consumers are apparently less concerned and focused instead on job growth, improvement in the housing market, and falling gasoline prices. A prominent index of consumer confidence reached its highest level since October 2007, two months before the onset of the "Great Recession."

U.S. Stocks¹
Index²	Friday's Close	Week's Change	% Change Year-to-Date
DJIA	12454.60	85.22	1.94%
S&P 500	1317.82	22.60	4.79%
NASDAQ Composite	2837.53	58.74	8.92%
S&P MidCap 400	934.08	29.21	6.21%
Russell 2000	766.06	19.63	3.42%

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 25, 2012

Eurozone woes fuel a flight to high-quality assets

Risk aversion persisted this week, reflecting worries about a possible Greek exit from the eurozone and its effect on the European banking system. Contagion risks also remain, with investors monitoring the situations in Spain and Italy. Spain still has far to go in turning its current account deficit into a surplus, shoring up the balance sheets of its banks and reducing fiscal deficits. We expect pressure on Spanish bond yields to continue and believe the country is likely to need further financial support by the end of the year. The Spanish 10-year yield fell slightly but remains above 6%. By contrast, German 10-year bund yields hit a record low amid an ongoing flight to quality. UK yields also fell to their all-time lows after a report showed that first-quarter economic growth declined more than expected, increasing the chances of additional easing from the Bank of England. In the foreign exchange market, the U.S. dollar strengthened against a basket of currencies, while the euro reached its lowest level versus the dollar since July 2010. U.S. Treasuries were generally quiet through most of the week, and longer-term yields closed a bit higher than their levels of a week earlier.

U.S. housing market strengthens

While the prices of U.S. homes are still falling in some areas, recent signs indicate that the sector may have bottomed and could be entering a new growth phase. New home sales were up 3.3% in April from March and 9.9% from April 2011—the seventh straight year-over-year increase. Existing home sales are also rising, up 10% in April 2012 from April 2011. In addition, the median price of existing homes rose 10% during the same period. The construction of new homes is still depressed from its pre-bubble peak, but housing starts in April soared 29.9% from April last year. The South and West registered the biggest gains. According to the Commerce Department, residential real estate has been a significant boost to overall economic growth during the past four quarters. If the trend continues, it could boost both job growth and manufacturing down the road, since the real estate market typically uses a lot of local labor and materials.

U.S. Treasury Yields¹
Maturity	May 25, 2012	May 18, 2012
2-Year	0.29%	0.29%
10-Year	1.74%	1.71%
30-Year	2.85%	2.79%

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

¹Source of data: Bloomberg.com, as of 2 p.m. ET Thursday, May 25, 2012.

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International Market

Week Ended May 18, 2012

International Stocks

Foreign stock markets closed lower for the week ending May 18, 2012 with the broad international measure, the MSCI EAFE Index (Europe, Australasia, and Far East), losing -5.9%.


Region/Country	Week's Return	% Change Year-to-Date
EAFE	-5.90%	-1.91%
Europe ex-U.K.	-6.33%	-2.60%
Denmark	-4.35%	13.47%
France	-5.60%	-3.63%
Germany	-6.37%	4.84%
Italy	-8.56%	-13.84%
Netherlands	-6.80%	-4.07%
Spain	-6.29%	-21.70%
Sweden	-10.62%	-3.83%
Switzerland	-4.41%	0.23%
United Kingdom	-7.08%	-2.01%
Japan	-3.51%	-2.02%
AC Far East ex-Japan	-5.74%	2.30%
Hong Kong	-4.31%	4.07%
Korea	-9.27%	-0.62%
Malaysia	-5.33%	1.15%
Singapore	-6.06%	9.00%
Taiwan	-4.07%	2.77%
Thailand	-3.01%	15.56%
EM Latin America	-8.01%	-4.30%
Brazil	-8.83%	-9.23%
Mexico	-6.52%	2.32%
Argentina	-13.12%	-43.01%
EM (Emerging Markets)	-6.42%	-0.04%
Hungary	-9.64%	3.11%
India	-2.67%	3.00%
Israel	-4.62%	-0.53%
Russia	-10.22%	-4.71%
Turkey	-5.46%	13.29%

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 -0.37%.


Region/Country	Week's Return	% Change Year-to-Date
Developed Markets	-0.37%	0.07%
Europe
Denmark	-1.38%	-0.74%
France	-1.87%	0.50%
Germany	-1.20%	0.84%
Italy	-3.30%	6.30%
Spain	-2.98%	-5.01%
Sweden	-2.84%	-3.10%
United Kingdom	-0.29%	2.74%
Japan	1.12%	-1.50%
Emerging Markets	-1.91%	3.44%
Argentina	-5.53%	-9.68%
Brazil	-1.00%	2.41%
Bulgaria	-0.29%	3.49%
Russia	-1.57%	4.00%

International Currency Markets

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


Currency	Close (May 18, 2012)	Week's Return (U.S. $)	% Change Year-to-Date (U.S. $)
Japanese yen	79.260	-0.78%	2.93%
Euro	1.2722¹	1.72%	2.00%
British pound	1.5807¹	1.80%	-1.71%

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.