U.S. Stock Market

Week Ended June 15, 2012

Hopes for global central bank intervention support weekly rally

U.S. stocks rose for the second straight week on expectations that central banks around the world will take coordinated action to support economies and calm markets if Greek elections on Sunday further destabilize the eurozone. The Standard & Poor's 500 Index reached its highest levels of the month on Friday, the end of a tumultuous week roiled by worries about Spain's deepening fiscal crisis and Greece's future in the eurozone.

Volatility rises before crucial Greek elections

Stocks were volatile as investors reacted to numerous developments in Europe's sovereign debt crisis. Stocks slid on Monday, days after Spain requested financial aid from European institutions to recapitalize its struggling banking sector, reflecting skepticism that the bailout would stem the crisis. Stocks advanced on Tuesday but retreated on Wednesday as borrowing costs surged in Europe, hitting a record high in Spain, as concerns about Europe's crisis flared. Stocks ended the week on a high note as speculation grew that central banks would boost liquidity to prepare for possible financial markets turmoil following this weekend's Greek elections. On Sunday, Greeks will vote for the second time in six weeks after May's parliamentary elections failed to give any single party enough power to form a government. The results of the election could determine whether Greece stays in or leaves the eurozone.

Weak indicators raise hopes for more Fed accommodation

Indicators this week showed more evidence of slowing U.S. economic growth. On Friday, the government reported that industrial production unexpectedly declined in May, while the University of Michigan's gauge of consumer sentiment fell in June to the lowest level this year. Separately, an index of regional manufacturing activity from the Federal Reserve Bank of New York slowed sharply in June from the prior month. An earlier report this week showed that May retail sales fell for the second straight month, prompting some economists to trim their second-quarter growth forecasts. Claims for unemployment benefits climbed by 6,000 to 386,000 for the week ended June 9—surprising analysts who had expected a decline in weekly jobless claims—in the latest sign of trouble for the labor market.

The raft of disappointing data raised hopes that the Federal Reserve will take new measures to stimulate the economy at its next policy meeting on June 19. T. Rowe Price economists believe that the Fed will present a weaker growth forecast next week, but events in Europe over the coming days—including Sunday's Greek elections and the reactions of policymakers and financial markets to the results—will have a significant impact on its decisions.

U.S. Stocks1

Index2

Friday's Close

Week's Change

% Change
Year-to-Date

DJIA

12767.17

212.97

4.50%

S&P 500

1342.83

17.17

6.78%

NASDAQ Composite

2872.80

14.38

10.27%

S&P MidCap 400

920.10

-5.88

4.66%

Russell 2000

771.44

2.25

4.12%

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 June 15, 2012

Bonds move higher despite ongoing European crisis

The U.S. fixed income market was surprisingly resilient this week, despite ongoing eurozone woes. The 10-year Treasury yield fluctuated, but drifted lower by the end of the week. Returns were modestly positive across all U.S. fixed income sectors, and high yield bonds rallied along with generally strong U.S. equity markets.

Spanish bailout only a first step in a drawn-out process

An injection of 100 billion euros into the Spanish banking system is clearly only a first step, as investors try to figure out how the capital will get allocated. It is likely that officials will aim to overcapitalize the Spanish banks as part of the process, but it is not enough to solve all of the eurozone's problems. Much of the region is facing a recession, high unemployment, and large budget deficits. Following the news of the bailout, fixed income investors responded with a notable lack of enthusiasm, driving the 10-year yield on Spanish sovereign debt close to 7%, where it hovered close to an all-time high. Moody's lowered Spain's sovereign debt rating to Baa3 late on Wednesday—dangerously close to junk status—which also pressured yields. Italian yields also moved higher due to contagion fears.

U.S. inflation subdued and could soften in the months ahead

The May consumer price index declined -0.3%, pulled lower by a 4.3% drop in energy prices. The index was up only 0.2% for the month when volatile food and energy prices are excluded. The bottom line is that core consumer prices remain firm, but the latest data point to some softening in the coming months. Food prices were unchanged in the face of weak economic growth. Core consumer prices, which exclude food and energy, rose at an annual rate of 2.4% in May, down from 2.9% in April. Commodities prices overall have been restrained in response to a stronger U.S. dollar over the last year and the related moderation of import price inflation.

U.S. Treasury Yields1

Maturity

June 15, 2012

June 8, 2012

2-Year

0.27%

0.27%

10-Year

1.58%

1.63%

30-Year

2.69%

2.75%

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

1Source of data: Bloomberg.com, as of 4 p.m. ET Friday, June 15, 2012.

 

 

 

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International Market

Week Ended June 8, 2012

International Stocks

Foreign stock markets closed higher for the week ending June 08, 2012 with the broad international measure, the MSCI EAFE Index (Europe, Australasia, and Far East), gaining 2.55%.

 

Region/Country

Week's Return

% Change Year-to-Date

EAFE

2.55%

-2.48%

Europe ex-U.K.

3.78%

-3.75%

Denmark

2.41%

6.93%

France

4.67%

-3.51%

Germany

2.24%

0.65%

Italy

6.24%

-11.75%

Netherlands

3.61%

-5.36%

Spain

9.61%

-22.67%

Sweden

3.34%

-1.59%

Switzerland

2.47%

-0.67%

United Kingdom

4.14%

-0.97%

Japan

-0.74%

-3.60%

AC Far East ex-Japan

-0.17%

1.74%

Hong Kong

0.10%

3.16%

Korea

0.35%

2.52%

Malaysia

0.21%

2.14%

Singapore

0.36%

6.69%

Taiwan

-1.65%

-1.03%

Thailand

2.49%

9.86%

EM Latin America

2.24%

-4.05%

Brazil

1.39%

-9.33%

Mexico

3.41%

1.92%

Argentina

-2.75%

-46.81%

EM (Emerging Markets)

1.46%

0.28%

Hungary

8.08%

5.38%

India

5.08%

4.84%

Israel

0.82%

-2.39%

Russia

5.88%

-2.31%

Turkey

4.68%

15.54%

 

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 -0.95%.

 

Region/Country

Week's Return

% Change Year-to-Date

Developed Markets

-0.95%

-0.69%

Europe

 

 

Denmark

-1.28%

-0.94%

France

-0.86%

0.46%

Germany

-0.43%

-0.39%

Italy

1.69%

4.24%

Spain

2.75%

-6.70%

Sweden

0.15%

-2.61%

United Kingdom

-0.60%

1.61%

Japan

-2.02%

-2.07%

Emerging Markets

1.96%

4.98%

Argentina

4.60%

-11.33%

Brazil

0.87%

3.76%

Bulgaria

0.47%

3.56%

Russia

1.92%

5.46%

 

International Currency Markets

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

 

Currency

Close
(June 8, 2012)

Week's Return
(U.S. $)

% Change
Year-to-Date (U.S. $)

Japanese yen

79.615

1.88%

3.36%

Euro

1.24671

-0.84%

3.96%

British pound

1.54181

-0.53%

0.79%

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.