Week
Ended August 24, 2012
Stocks
fall on renewed concerns about China, Europe
Stocks
broke a string of six weekly gains and moved lower as weakness in the global
economy took a toll on sentiment. China's export-driven growth model seemed to
be sputtering, as an index of manufacturing activity indicated further
contraction. European economic data were also weak, and some investors reacted
with dismay to a continuing hard line on Greece from Germany. Chancellor Angela
Merkel stated that Greece should continue its austerity reforms even though it
had "demanded a great deal" of its citizens.
Some
speculated that the pullback was also a function of investors taking profits
after the summer rally. The S&P 500 Index hit a four-year high on Tuesday—coming
within 9.5% of its all-time high in October 2007—before
suffering its biggest drop in nearly a month on Thursday. August has generally
been characterized by modest market moves despite light trading volumes typical
for the summer months, which can accentuate volatility.
Slowing
global economy takes toll on earnings
The
tail end of second-quarter earnings season reflected a global slowdown and
appeared to also weigh on sentiment. One of the world's largest mining
companies announced that it was canceling $50 billion worth of new projects,
partly in reaction to slowing demand from Asia, the world's largest commodities
consumer. Two leading U.S. computer manufacturers also announced disappointing
revenues, due in part to slowing demand from Western Europe and
emerging markets.
Fed
may hold off on economic stimulus amid recent improvements
The
Federal Reserve provided a brief boost to stocks at midweek, when minutes from
its policy meeting at the start of the month indicated that officials were
ready to introduce new stimulus "fairly soon" unless the economy
showed "substantial and sustainable" improvement. A Fed official
later hinted that recent economic data might stay the Fed's hand, however.
Hiring, retail sales, and housing market data have generally surprised to the
upside in recent weeks. At the end of the week, the Commerce Department
announced that durable goods orders had risen sharply in July.
T. Rowe Price economists note that shipments of goods excluding
aircraft and defense were flat, but upward revisions to previous months suggest
solid momentum for capital spending entering the third quarter.
|
U.S. Stocks1 |
|||
|
Index2 |
Friday's Close |
Week's Change |
% Change |
|
DJIA |
13157.97 |
-117.23 |
7.70% |
|
S&P 500 |
1411.13 |
-7.03 |
12.21% |
|
NASDAQ Composite |
3069.79 |
-6.80 |
17.84% |
|
S&P MidCap 400 |
969.82 |
-7.63 |
10.28% |
|
Russell 2000 |
808.76 |
-10.29 |
9.18% |
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 August 24, 2012
Treasury
yields ease after Fed minutes suggest more stimulus is likely
Yields
on U.S. Treasuries declined this week as expectations rose that the Federal
Reserve would engage in further economic stimulus to jumpstart the economy.
Before this week, Treasury yields had risen meaningfully in the month-to-date
period as better U.S. economic data and hopes that a resolution to the eurozone
debt crisis was near led investors to sell Treasuries and buy higher-risk
assets. But yields began slipping on Wednesday, when the National Association
of Realtors reported that sales of previously owned homes rose at a
surprisingly slow pace in July. The Treasury rally continued after the Fed
released minutes from its last policy meeting, which hinted at a willingness to
engage in further actions to bolster the slow recovery. Market participants
interpreted the minutes to mean that the Fed was leaning toward a third round
of Treasury bond buying—otherwise known as quantitative easing,
or QE3—or other measures designed to suppress
interest rates.
Despite
a more dovish tone, T. Rowe Price's economics team believes that
additional Fed asset purchases are unlikely while the Operation Twist maturity
extension program is in progress. If additional stimulus does occur in the near
term, it is more likely to come in the form of an extension of the central
bank's low rate policy guidance.
Munis
and corporate yields little changed in muted trading
Returns
for the broader fixed income market generally benefited from the decline in
underlying Treasury yields, but trading was light and spreads were little
changed. The municipal yield curve was generally unchanged. The market took a
firmer tone on Wednesday and Thursday but still underperformed Treasuries.
Issuance picked up for the week with issuers looking to come to market before
Labor Day.
Credit
spreads on investment-grade corporate bonds were largely unchanged for the
week. New issuance was expectedly slow, while secondary market trading was
minimal. Although fundamentals in the sector are generally strong, two large
investment-grade technology companies reported weak second-quarter earnings.
Both companies reported that revenue declined from the prior-year period and
provided generally lower guidance for the remainder of the year.
Spreads
on emerging markets debt were largely range-bound during the week. Bonds viewed
as lower risk, which tend to be more highly correlated with U.S. Treasuries,
outperformed riskier issues somewhat following the release of dovish Fed minutes
on Wednesday. With the slight increase in QE3 expectations, the U.S. dollar
depreciated against most major trading currencies.
|
U.S. Treasury Yields1 |
||
|
Maturity |
August 24, 2012 |
August 17, 2012 |
|
2-Year |
0.27% |
0.29% |
|
10-Year |
1.68% |
1.81% |
|
30-Year |
2.79% |
2.93% |
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, August
24, 2012.
___________
Week
Ended August 17, 2012
International Stocks
Foreign stock markets closed higher for
the week ending August 17, 2012 with the broad international measure, the MSCI
EAFE Index (Europe, Australasia, and Far East), gaining 0.9%.
|
|
||
|
Region/Country |
Week's Return |
% Change Year-to-Date |
|
EAFE |
0.90% |
8.26% |
|
Europe ex-U.K. |
1.40% |
8.54% |
|
Denmark |
0.68% |
22.83% |
|
France |
1.36% |
8.84% |
|
Germany |
1.28% |
13.75% |
|
Italy |
3.48% |
-1.08% |
|
Netherlands |
0.67% |
7.71% |
|
Spain |
7.15% |
-10.47% |
|
Sweden |
-0.06% |
16.85% |
|
Switzerland |
0.47% |
8.55% |
|
United Kingdom |
0.25% |
9.39% |
|
Japan |
0.85% |
3.14% |
|
AC Far East ex-Japan |
-0.47% |
10.73% |
|
Hong Kong |
1.05% |
14.19% |
|
Korea |
-1.06% |
11.66% |
|
Malaysia |
-0.41% |
8.51% |
|
Singapore |
-0.13% |
23.96% |
|
Taiwan |
-0.03% |
8.40% |
|
Thailand |
-0.33% |
19.16% |
|
EM Latin America |
-0.65% |
4.10% |
|
Brazil |
-0.69% |
-1.25% |
|
Mexico |
-0.95% |
17.22% |
|
Argentina |
-1.32% |
-44.97% |
|
EM (Emerging Markets) |
-0.80% |
8.46% |
|
Hungary |
-1.46% |
16.41% |
|
India |
0.49% |
11.37% |
|
Israel |
0.28% |
-3.47% |
|
Russia |
-0.38% |
7.93% |
|
Turkey |
0.15% |
36.61% |
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 -1.12%.
|
|
||
|
Region/Country |
Week's Return |
% Change Year-to-Date |
|
Developed Markets |
-1.12% |
-0.25% |
|
Europe |
|
|
|
Denmark |
-0.74% |
-3.21% |
|
France |
-0.45% |
1.82% |
|
Germany |
-0.72% |
-2.52% |
|
Italy |
0.77% |
4.65% |
|
Spain |
1.76% |
-7.77% |
|
Sweden |
-1.35% |
3.41% |
|
United Kingdom |
-1.21% |
3.49% |
|
Japan |
-1.87% |
-1.78% |
|
Emerging Markets |
-0.62% |
11.21% |
|
Argentina |
2.41% |
1.41% |
|
Brazil |
-1.38% |
8.27% |
|
Bulgaria |
0.25% |
6.65% |
|
Russia |
-0.39% |
10.52% |
International Currency Markets
On the currency front, the U.S. dollar
was stronger against the major currencies for the week.
|
|
|||
|
Currency |
Close |
Week's Return |
% Change |
|
Japanese yen |
79.520 |
1.67% |
3.24% |
|
Euro |
1.22971 |
0.14% |
5.27% |
|
British pound |
1.56771 |
0.09% |
-0.87% |
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.