U.S. Stock Market

Week Ended July 20, 2012

Positive earnings surprises boost stocks

The first full week of second-quarter earnings reports helped drive large-cap stocks higher despite mixed economic data; the smaller-cap indexes recorded modest losses. Analysts had generally lowered their expectations for second-quarter earnings as revenue growth remained muted while corporate efforts to cut costs had largely run their course. Nevertheless, several prominent companies, particularly in the technology sector, managed to beat those expectations. Profit outlooks for the rest of the year were generally subdued, however, reflecting the troubles in Europe and the slowdown in the rest of the world economy.

Hopes for Fed stimulus support market

Federal Reserve Chairman Ben Bernanke testified before Congress during the week and generally echoed the guarded perspective on the American economy. Although markets appeared at first to move lower in response to Bernanke's pessimism, investors seemed to embrace the view that the central bank might respond with further economic stimulus and pushed stocks higher on Tuesday afternoon and Wednesday. The S&P 500 reached its highest level since the spring on Thursday as positive earnings surprises and hopes for stimulus continued to drive investor sentiment.

New troubles in Spain deflate week's gains

The week's gains partially evaporated on Friday, however, as fears over the European debt crisis resurfaced. Regional government officials in Valencia, Spain, announced that they were seeking aid from the central government, which helped drive sovereign Spanish bond yields to new euro-era highs. The ability of Spain's provincial governments to deal with massive debt loads has been one of the primary factors weighing on the nation's economy and financial system. Despite the day's declines, Friday saw two successful initial public offerings (IPO). The relatively light IPO market has been one sign of market weakness in recent months.

Poor investor sentiment can be a positive sign

The well-publicized problems in Europe and the sluggish recovery at home have proved wearying for many in recent months. Nevertheless, T. Rowe Price managers note that weak investor sentiment—as evidenced by the preference for bonds, money market funds, and other low-risk assets—is actually one factor that could provide support for stock prices. Equity valuations appear reasonable, in the opinion of many T. Rowe Price experts, and particularly so in relation to bonds.

U.S. Stocks1

Index2

Friday's Close

Week's Change

% Change
Year-to-Date

DJIA

12822.57

45.48

4.95%

S&P 500

1362.66

5.89

8.35%

NASDAQ Composite

2925.30

16.83

12.29%

S&P MidCap 400

940.54

-2.12

6.95%

Russell 2000

792.53

-8.27

6.99%

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 20, 2012

Yields turn negative for high-quality European sovereigns

As a result of the European Central Bank's reduction on deposits to 0% and the ongoing flight to quality, short-term yields in a growing number of high-quality sovereign markets moved into negative territory. Germany issued two-year notes with negative yields on Wednesday, while investors have accepted negative yields on debt maturing in two years or less from Finland, Denmark, Switzerland, the Netherlands, and Austria. Meanwhile, Spanish 10-year yields breached the 7% mark on Thursday, following a debt auction that met tepid demand.

Buoyant demand, limited supply sustains bonds

In the U.S., analysts expect the net supply of lower-quality investment-grade bonds to be lower in the second half of 2012 than in the first half. Longer-term Treasuries will also be in thin supply due to ongoing purchases by the Federal Reserve. The overall result should be stronger bond prices in the coming weeks. The high yield market appears healthy, thanks to demand from investors seeking yield in a low-rate environment. Investors seeking to put cash to work have sustained strong demand for both new issues and secondary market bonds. Consequently, below investment-grade companies have been opportunistically selling bonds in response to high demand. T. Rowe Price anticipates that the volume of new issues will remain relatively high until a seasonal slowdown occurs in August.

Fed warns of rising risks to economic growth

Speaking before the Senate Banking Committee this week, Federal Reserve Chairman Ben Bernanke warned that the "risks to economic growth have increased" and a further decline in unemployment would likely be "frustratingly slow." He noted that the economy slowed from a 2.5% rate of growth in the second half of 2011 to roughly 2.0% in this year's first quarter and likely slowed even more in the second quarter. The only bright spot on the horizon was signs of modest improvement in the housing market. Bernanke urged Congress to take action to avoid the year-end "fiscal cliff," when a series of tax increases and mandatory spending cuts are scheduled to occur. Unfortunately, Senator Charles Schumer of New York replied that Congress was unlikely to do anything before the November elections. "The Fed is the only game in town," he said. Bernanke offered no hint that the Fed was planning to ease further, but did reiterate his pledge that the central bank would take "appropriate" action if needed to promote a stronger recovery.

U.S. Treasury Yields1

Maturity

July 20, 2012

July 13 2012

2-Year

0.21%

0.24%

10-Year

1.46%

1.49%

30-Year

2.54%

2.58%

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 20, 2012.

 

 

 

 

 

 

 

 

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International Market

Week Ended July 13, 2012

International Stocks

Foreign stock markets closed lower for the week ending July 13, 2012 with the broad international measure, the MSCI EAFE Index (Europe, Australasia, and Far East), losing -0.75%.

 

Region/Country

Week's Return

% Change Year-to-Date

EAFE

-0.75%

1.94%

Europe ex-U.K.

0.25%

0.07%

Denmark

-0.22%

14.38%

France

-0.17%

-0.71%

Germany

1.73%

5.56%

Italy

-0.46%

-9.94%

Netherlands

0.72%

-0.56%

Spain

-0.70%

-21.67%

Sweden

0.44%

5.44%

Switzerland

-0.57%

2.51%

United Kingdom

0.31%

4.25%

Japan

-3.14%

0.55%

AC Far East ex-Japan

-2.96%

4.70%

Hong Kong

-2.96%

8.61%

Korea

-3.77%

1.97%

Malaysia

-0.35%

5.82%

Singapore

0.84%

19.09%

Taiwan

-4.07%

1.25%

Thailand

0.72%

18.12%

EM Latin America

-0.31%

-0.05%

Brazil

-1.43%

-7.82%

Mexico

2.38%

15.75%

Argentina

-1.30%

-46.56%

EM (Emerging Markets)

-2.00%

3.13%

Hungary

-0.53%

6.83%

India

-1.10%

8.91%

Israel

-0.66%

-4.73%

Russia

0.77%

3.34%

Turkey

0.17%

28.31%

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 0.55%.

 

Region/Country

Week's Return

% Change Year-to-Date

Developed Markets

0.55%

-0.33%

Europe

 

 

Denmark

0.16%

-2.43%

France

0.36%

0.50%

Germany

-0.02%

-1.93%

Italy

-0.43%

1.84%

Spain

1.31%

-9.78%

Sweden

0.11%

-0.07%

United Kingdom

1.02%

3.34%

Japan

0.71%

-1.04%

Emerging Markets

1.41%

9.76%

Argentina

1.06%

-2.56%

Brazil

1.05%

7.51%

Bulgaria

0.70%

4.41%

Russia

1.77%

9.19%

International Currency Markets

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

 

Currency

Close
(July 13, 2012)

Week's Return
(U.S. $)

% Change
Year-to-Date (U.S. $)

Japanese yen

79.210

-0.40%

2.87%

Euro

1.22441

0.51%

5.68%

British pound

1.55471

-0.25%

-0.04%

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.