U.S. Stock Market

Week Ended July 13, 2012

Stocks roughly flat thanks to Friday rally

A strong Friday rally helped large-cap stocks trim earlier losses to end slightly higher for the week, while the technology-oriented Nasdaq and the smaller-cap indexes were unable to shake modest losses. Unease over the European debt situation continued to weigh on the market. Investors were particularly discouraged to see Spanish sovereign bond yields rise back toward 7%, a level widely seen as unsustainable. Worries over a slowdown in China also hampered markets, although news Friday that the Chinese economy had grown at an annualized rate of 7.6% in the latest quarter appeared to reassure investors and help spark the rally. Even though it was the sixth consecutive quarter of slowing growth in China, investors appeared relieved that the pace of growth—still enviable by developed economy standards—was not worse.

Worries grow about U.S. corporate profits, even as some indicators become more positive

Concerns about how global economic problems might affect U.S. corporate profits grew on Tuesday, after a prominent chipmaker slashed its revenue forecasts based on weakening sales in Europe and China. Other profit warnings in the technology sector caused further declines later in the week. The start of second-quarter earnings season brought positive surprises as well, however. Banking giant JPMorgan Chase reported a $5 billion profit in the latest quarter despite its well-publicized trading loss, helping spur a rally in bank stocks on Friday.

Even as investors braced for disappointing profit growth based on signs that the U.S. economic recovery was slowing again, closely watched reports proved more encouraging than they had been in recent weeks. On Thursday, the Labor Department reported that weekly jobless claims, which had been on a recent uptrend, had dropped sharply and reached their lowest level in four years. The Federal Reserve also announced that consumer credit had expanded substantially in May, suggesting growing demand for cars and other expensive items. Finally, falling oil prices and rising exports helped the U.S. trade deficit narrow in May.

Environment could favor growth stocks

Many T. Rowe Price managers expect U.S. economic growth to remain subdued due to both external factors, such as the European debt crisis, and internal ones, such as political gridlock over how to address our own debt situation. Paradoxically, perhaps, a low level of economic growth may favor growth stocks, which tend to be less reliant on a strong economy to generate rising corporate earnings.

U.S. Stocks1

Index2

Friday's Close

Week's Change

% Change
Year-to-Date

DJIA

12777.09

4.59

4.58%

S&P 500

1356.77

2.09

7.89%

NASDAQ Composite

2908.47

-28.86

11.64%

S&P MidCap 400

942.66

-5.05

7.19%

Russell 2000

800.80

-6.17

8.11%

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 July 13, 2012

U.S. Treasuries rally as doubts linger about a quick resolution to Europe's debt problems

U.S. Treasury yields fell for all maturities, testing their all-time lows. On Wednesday, investor demand was strong for a $21 billion 10-year note auction, with some investors accepting yields as low as 1.46%. The strength in U.S. Treasuries was in reaction to fading optimism about the recent eurozone summit, with investors questioning whether a viable resolution to the ongoing sovereign debt crisis is achievable. Central banks in Brazil and South Korea surprised the markets with cuts in base interest rates in the wake of cuts by the European Central Bank and China last week. While central banks around the globe are easing policy, the Fed remains on hold with rates already at exceptionally low levels.

The municipal market firmed throughout the week with yields declining for most maturities. Muni investors resumed their buying when issuers returned to the market after the July 4 holiday week. High yield municipal bonds benefited as investors demanded higher tax-exempt yields at the same time that the supply of high yield bonds has been diminishing due to a slowdown in new issuance. This unbalanced supply/demand dynamic has been amplified by lean broker-dealer inventories of high yield securities, which limits supply in the secondary market. These positive technical factors are contributing to the surprising stability of below investment-grade securities in the face of ongoing global challenges.

The U.S. Federal Reserve remains open to renewed economic stimulus

The minutes from the last Federal Reserve meeting in June show that monetary policymakers remain open to the prospect of providing more economic stimulus if conditions deteriorate further. The Fed announced at the time that it would continue its existing program of buying an additional $267 billion in long-term bonds with proceeds from the sale of short-term notes, but it stopped short of announcing a new round of quantitative easing to boost economic growth. The recently released minutes, however, make it clear that the Fed remains concerned about a sharp slowdown in the months ahead and is prepared to act more boldly should conditions call for further action.

U.S. Treasury Yields1

Maturity

July 13, 2012

July 6, 2012

2-Year

0.24%

0.27%

10-Year

1.49%

1.55%

30-Year

2.58%

2.67%

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 13, 2012.

 

 

 

 

 

 

 

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International Market

Week Ended July 6, 2012

International Stocks

Foreign stock markets closed lower for the week ending July 06, 2012 with the broad international measure, the MSCI EAFE Index (Europe, Australasia, and Far East), losing -0.64%.

 

Region/Country

Week's Return

% Change Year-to-Date

EAFE

-0.64%

2.71%

Europe ex-U.K.

-2.90%

-0.19%

Denmark

-0.01%

14.63%

France

-3.55%

-0.54%

Germany

-2.88%

3.77%

Italy

-6.17%

-9.53%

Netherlands

-2.59%

-1.27%

Spain

-7.70%

-21.12%

Sweden

-1.13%

4.98%

Switzerland

-1.17%

3.10%

United Kingdom

0.54%

3.93%

Japan

0.56%

3.81%

AC Far East ex-Japan

1.92%

7.90%

Hong Kong

3.75%

11.92%

Korea

0.44%

5.96%

Malaysia

1.51%

6.19%

Singapore

2.88%

18.09%

Taiwan

1.84%

5.55%

Thailand

2.36%

17.27%

EM Latin America

0.61%

0.26%

Brazil

1.13%

-6.49%

Mexico

-1.10%

13.06%

Argentina

0.73%

-45.85%

EM (Emerging Markets)

1.07%

5.23%

Hungary

-5.60%

7.41%

India

1.39%

10.12%

Israel

2.15%

-4.09%

Russia

0.55%

2.55%

Turkey

-0.49%

28.10%

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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 -0.63%.

 

Region/Country

Week's Return

% Change Year-to-Date

Developed Markets

-0.63%

-0.88%

Europe

 

 

Denmark

-1.26%

-2.59%

France

-1.06%

0.13%

Germany

-1.53%

-1.91%

Italy

-3.93%

2.28%

Spain

-5.63%

-10.95%

Sweden

0.05%

-0.18%

United Kingdom

-0.46%

2.30%

Japan

0.54%

-1.74%

Emerging Markets

1.24%

8.23%

Argentina

1.44%

-3.58%

Brazil

1.09%

6.39%

Bulgaria

0.66%

3.69%

Russia

0.77%

7.29%

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International Currency Markets

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

 

Currency

Close
(July 6, 2012)

Week's Return
(U.S. $)

% Change
Year-to-Date (U.S. $)

Japanese yen

79.530

-0.33%

3.26%

Euro

1.23071

3.02%

5.20%

British pound

1.55081

1.13%

0.22%

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.