U.S. Stock Market

Week Ended September 21, 2012

Stocks modestly lower as global slowdown offsets U.S. optimism

Stocks were modestly lower for the week. Several worrisome signals about the global economy encouraged investors to sit on the sidelines following two weeks of strong gains, but a prominent product rollout and some positive U.S. economic data helped the major indexes hold their ground.

Further economic slowing overseas

While investors have been encouraged by progress in addressing the European debt crisis in recent weeks, data continue to suggest that the global economy is slowing. European purchasing managers indexes released during the week showed that business activity for the Continent as a whole was contracting at the fastest pace in three years. Southern Europe appears to be faring particularly poorly, but the contraction in France was pronounced as well. Only Germany saw some improvement. In Asia, the Bank of Japan increased its stimulus program—on the heels of new asset purchase plans announced by the U.S. Federal Reserve and European Central Bank—but a preliminary survey of Chinese manufacturing activity in September showed continued contraction.

Falling commodity prices punish stocks but could provide some relief for consumers and industry

The slowdown in Europe and elsewhere weighed on commodity prices at the start of the week. Energy stocks swooned Monday as oil prices headed sharply lower, although some speculated that a market glitch or trading error might have been to blame. Steel prices have also fallen, providing evidence of waning manufacturing activity. In another indication of global weakness, FedEx announced that it was paring back its revenue expectations, while diversified industrial firm 3M stated the "economic environment has changed" in cutting back its own targets. On a positive note, however, lower prices for energy and other commodities could provide some wiggle room for household budgets and corporate earnings, particularly for commodity or energy intensive industries.

A micro/macro boost to the U.S. economy?

The U.S. economy appeared to be faring somewhat better than the global economy as a whole, with new signs of strength in the housing market and a slight decrease in weekly jobless claims providing some ammunition for bulls. At the intersection of microeconomics and macroeconomics, some economists were hopeful that the release of Apple's new iPhone 5 on Friday would stimulate the overall economy. Pre-orders of the phone topped estimates, suggesting that retail sales might receive a meaningful boost if millions of smartphone users go out to buy the expensive device. Apple became one of the few stocks trading above $700 per share and now accounts for nearly 5% of the market-capitalization-weighted S&P 500 Index.

U.S. Stocks1

Index2

Friday's Close

Week's Change

% Change
Year-to-Date

DJIA

13579.47

-13.90

11.15%

S&P 500

1460.15

-5.62

16.11%

NASDAQ Composite

3179.96

-3.99

22.06%

S&P MidCap 400

1006.60

-19.07

14.46%

Russell 2000

855.57

-8.50

15.50%

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 September 21, 2012

Municipal bonds continue to outpace Treasuries; mortgages also shine

Municipal bonds rallied across all maturities throughout most of the week, as investors welcomed an increased amount of issuance. Tax-free yields remain higher than Treasury yields for 10- and 30-year maturities. Muni demand is coming from many quarters, with investors attracted by their relatively high yields, particularly for intermediate- and long-term securities. The mortgage market was also active as the Fed continued its QE3-driven purchases of mortgage-backed securities. Yield spreads above comparable Treasuries were somewhat volatile but ended the week mostly near the lows established last Friday, following the Fed's announcement of its latest stimulus program.

High yield bonds modestly higher while investment grade is sluggish

High yield bond returns were modestly positive through most of the week. Global growth concerns weighed on investor sentiment, despite recent announcements regarding new policy actions from key central banks. However, positive technical factors, such as demand from individual investors, continued to support this segment of the market. September is shaping up to be the busiest month of the year in terms of new issuance. However, most new issues have been related to refinancing, which should be positive for underlying credit fundamentals. Investment-grade corporate bonds were largely stable. Aside from an active day on Tuesday, new issuance was somewhat lower for the week overall.

Mixed economic news highlights uncertainty

The bright spot for investors during the week was a report that housing starts in August rose 2.3%, indicating that the housing recovery remains intact. The August pace was the highest since May 2010. Homebuilder sentiment also suggests that the rate of new single-family construction could quicken in the coming months. Also, private sector debt has continued to decline. Elsewhere, the news was less than sanguine. Household net worth fell $321 billion in the second quarter to $62.7 trillion—although there has been a slight rebound so far in the current quarter. U.S. manufacturing has also been sluggish, but it has so far resisted the weakness in the eurozone, where factory output has been contracting sharply.

U.S. Treasury Yields1

Maturity

September 21, 2012

September 14, 2012

2-Year

0.26%

0.25%

10-Year

1.75%

1.87%

30-Year

2.94%

3.09%

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, September 21, 2012.

 

 

 

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International Market

Week Ended September 14, 2012

International Stocks

Foreign stock markets closed higher for the week ending September 14, 2012 with the broad international measure, the MSCI EAFE Index (Europe, Australasia, and Far East), gaining 3.71%.

 

Region/Country

Week's Return

% Change Year-to-Date

EAFE

3.71%

14.60%

Europe ex-U.K.

4.35%

19.19%

Denmark

0.48%

28.71%

France

4.56%

19.64%

Germany

5.51%

27.66%

Italy

5.96%

15.56%

Netherlands

2.32%

16.93%

Spain

6.14%

3.60%

Sweden

5.04%

22.17%

Switzerland

2.64%

15.66%

United Kingdom

3.49%

14.74%

Japan

2.62%

3.79%

AC Far East ex-Japan

4.79%

15.23%

Hong Kong

4.98%

20.16%

Korea

5.68%

16.61%

Malaysia

3.73%

11.35%

Singapore

3.66%

28.53%

Taiwan

6.06%

15.71%

Thailand

5.03%

26.80%

EM Latin America

4.80%

8.05%

Brazil

5.94%

2.25%

Mexico

3.48%

22.52%

Argentina

6.33%

-44.75%

EM (Emerging Markets)

4.72%

13.55%

Hungary

8.45%

32.54%

India

6.14%

18.49%

Israel

2.59%

-1.35%

Russia

7.54%

20.78%

Turkey

0.80%

43.05%

 

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 0.64%.

 

Region/Country

Week's Return

% Change Year-to-Date

Developed Markets

0.64%

3.72%

Europe

 

 

Denmark

0.88%

1.02%

France

2.38%

8.05%

Germany

1.57%

2.88%

Italy

2.76%

17.00%

Spain

1.82%

2.19%

Sweden

0.21%

5.67%

United Kingdom

-0.66%

5.68%

Japan

-0.29%

-0.10%

Emerging Markets

-0.10%

13.90%

Argentina

7.50%

13.78%

Brazil

-0.68%

9.34%

Bulgaria

0.14%

7.80%

Russia

-0.08%

13.12%

 

International Currency Markets

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

 

Currency

Close
(September 14, 2012)

Week's Return
(U.S. $)

% Change
Year-to-Date (U.S. $)

Japanese yen

78.325

0.34%

1.77%

Euro

1.31481

-2.71%

-1.28%

British pound

1.62461

-1.37%

-4.54%

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.