U.S. Stock Market

Week Ended July 6, 2012

Stocks fall on disappointing employment news

Large-cap stocks declined for the week as a disappointing U.S. payrolls report overshadowed more hopeful economic data. The pullback at the end of the week weighed less heavily technology-oriented Nasdaq, which ended roughly flat, while the smaller-cap indexes saw gains. On Friday, markets fell sharply in response to news that employers added only 80,000 jobs in June, the third month of weak gains, while the unemployment rate remained steady at 8.2%. The news was particularly disappointing given Thursday's jobs estimate from payroll processor ADP, which showed a net gain in private payrolls of 179,000. A decline in weekly jobless claims reported on Thursday had also raised hopes that the weak showing in April and May might be proved an aberration.

More encouraging details in payrolls report

The June payrolls number was only modestly below the estimate of T. Rowe Price's economists, who had predicted a gain of 90,000. They note that the gain—while disappointing in light of the earlier ADP estimate—suggests a stronger underlying trend of roughly 150,000 jobs created per month over the first half of the year, roughly in line with the labor market's performance in early 2010 and 2011 They also note that the June report contained some strength in the details: Average working hours and earnings increased, pointing to a healthy gain in wage and salary income.

Also encouraging was a rise in manufacturing hours worked, which suggest that the sector continued to grow in June. The health of the manufacturing sector came into doubt on Monday, when the Institute for Supply Management announced that the sector had contracted in June for the first time in three years. In particular, the ISM's gauge of new orders fell sharply, reflecting a slowdown in global demand. On Tuesday, however, the market regained its balance following a report from the Commerce Department, which showed a good rise in May in orders for manufactured goods.

Energy stocks get a boost as oil prices rise

Although energy shares saw some strength at midweek as oil rallied, the sector has suffered from several weeks of declining crude prices. Meanwhile, natural gas prices have plummeted in recent months due to increased supply from new extraction techniques. Tim Parker, manager of the New Era Fund, which focuses on natural resources, notes that lower energy prices weigh on producers but may create investment opportunities elsewhere. For example, chemical and paint companies using natural gas-linked hydrocarbon inputs may now have a cost advantage over global companies using oil-linked hydrocarbons.

U.S. Stocks1

Index2

Friday's Close

Week's Change

% Change
Year-to-Date

DJIA

12772.50

-107.59

4.54%

S&P 500

1354.68

-7.48

7.72%

NASDAQ Composite

2937.33

2.28

12.75%

S&P MidCap 400

947.71

6.56

7.76%

Russell 2000

806.97

9.61

8.94%

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.

 

 ___________

 


U.S. Bond Market

Week Ended July 6, 2012

Treasuries gain after weak June jobs report, global central banks cut rates

U.S. Treasuries rose as yields declined on Friday, the end of a holiday-shortened week, after a disappointing June jobs report increased investor demand for the relative safety of U.S. government debt. The 10-year Treasury yield—a benchmark for consumer and corporate borrowing—hovered close to 1.54%, its lowest level in a month.

The Labor Department said that U.S. employers added 80,000 jobs in June, after a revised gain of 77,000 in May, while the national unemployment rate stayed unchanged at 8.2%. The weaker-than-expected jobs report was the latest data indicating that the U.S. economy is losing steam. Earlier this week, the Institute for Supply Manufacturing (ISM) factory index showed U.S. manufacturing unexpectedly contracted in June; however, the ISM index of nonmanufacturing businesses, which covers about 90% of the economy, showed slowing but ongoing expansion last month.

June's disappointing jobs report increases the chances that the Federal Reserve will undertake new measures to stimulate the economy at its next policy meeting in August. T. Rowe Price economists believe the Fed will be open to more action until the recovery is more firmly established. However, we think the threshold for a new round of asset purchases is high, partly because of the limited effect that such action would have on the economy.

Treasuries received a lift on Thursday after central banks in the eurozone, China, and the UK took fresh measures to bolster growth in what appeared to be a coordinated easing campaign. However, the actions had little impact on global financial markets by the end of trading.

High yield benefits from strong demand

In other bond sectors, the high yield market continues to benefit from positive inflows from investors seeking yield in a low interest rate environment, a limited supply of new issues, and low broker-dealer inventories. These unbalanced supply and demand dynamics—a lot of money chasing too few bonds—has provided the asset class with a technical boost in recent weeks. Investment-grade corporate bonds delivered solid performance during a slow trading week. The AAA muni curve remained unchanged as there was no new issuance during the shortened trading week.

U.S. Treasury Yields1

Maturity

July 6, 2012

June 29, 2012

2-Year

0.27%

0.31%

10-Year

1.55%

1.65%

30-Year

2.67%

2.76%

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, July 6, 2012.

 

 

 

 

 

 

___________


International Market

Week Ended June 29, 2012

International Stocks

Foreign stock markets closed higher for the week ending June 29, 2012 with the broad international measure, the MSCI EAFE Index (Europe, Australasia, and Far East), gaining 3.21%.

 

Region/Country

Week's Return

% Change Year-to-Date

EAFE

3.21%

3.38%

Europe ex-U.K.

3.93%

2.79%

Denmark

3.33%

14.65%

France

4.71%

3.11%

Germany

3.56%

6.85%

Italy

6.00%

-3.58%

Netherlands

4.52%

1.36%

Spain

4.67%

-14.54%

Sweden

2.48%

6.18%

Switzerland

2.53%

4.32%

United Kingdom

1.88%

3.37%

Japan

3.49%

3.23%

AC Far East ex-Japan

1.74%

5.87%

Hong Kong

2.23%

7.88%

Korea

1.39%

5.50%

Malaysia

0.28%

4.60%

Singapore

2.91%

14.78%

Taiwan

1.52%

3.64%

Thailand

2.29%

14.57%

EM Latin America

2.45%

-0.35%

Brazil

1.53%

-7.54%

Mexico

6.04%

14.31%

Argentina

1.82%

-46.24%

EM (Emerging Markets)

2.26%

4.12%

Hungary

2.74%

13.78%

India

5.12%

8.60%

Israel

1.57%

-6.11%

Russia

5.00%

1.99%

Turkey

4.47%

28.73%

 

 

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 0.93%.

 

Region/Country

Week's Return

% Change Year-to-Date

Developed Markets

0.93%

-0.25%

Europe

 

 

Denmark

1.09%

-1.35%

France

0.81%

1.21%

Germany

1.03%

-0.38%

Italy

1.46%

6.46%

Spain

1.37%

-5.64%

Sweden

1.06%

-0.22%

United Kingdom

0.35%

2.77%

Japan

0.86%

-2.27%

Emerging Markets

0.61%

6.91%

Argentina

1.68%

-4.95%

Brazil

0.05%

5.24%

Bulgaria

-0.27%

3.00%

Russia

0.57%

6.47%

 

International Currency Markets

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

 

Currency

Close
(June 29, 2012)

Week's Return
(U.S. $)

% Change
Year-to-Date (U.S. $)

Japanese yen

79.790

-0.88%

3.57%

Euro

1.26911

-1.24%

2.24%

British pound

1.56851

-0.81%

-0.92%

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.