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Week Ended October 5, 2012

Economic signals send Dow to highest level in almost five years

Stocks registered a solid gain for the week. The Dow established almost a five-year high, while the S&P 500 and Nasdaq Composite Index neared multiyear records established in September. Investors were encouraged by better-than-expected U.S. economic data.

Renewed expansion in factory activity was encouraging

Having helped lead the U.S. economy out of recession over the last few years, the manufacturing sector weakened somewhat in recent months, reflecting the slowdown in exports and the global economy. As a result, investors were pleasantly surprised when the closely watched Institute for Supply Management's gauge of manufacturing activity indicated expansion in the sector in September.

Manufacturing strength may not just be temporary

T. Rowe Price managers are keeping a close eye on what some believe is a durable revival in U.S. manufacturing. While the in-sourcing trend reflects improved U.S. labor cost competitiveness, global companies are also focusing on a number of other factors—such as greater business predictability, more secure supply chains, and relatively stable political and legal environments—that make the U.S. more appealing for fixed investment.

Labor market improves

Another component driving positive sentiment was an improvement in the labor market outlook. On Wednesday, investors were encouraged by a good gain in private jobs tracked by payroll processing firm ADP. Friday brought word of a more modest gain in the official Labor Department employment report for September but also news that the unemployment rate had declined to 7.8%, its lowest level since January 2009. T. Rowe Price economists note some encouraging details in the report, including a lengthening of the factory workweek.

Worries over Europe keep lid on gains

One factor driving stock swings during the week appeared to be uncertainty over whether Spain would undertake austerity measures in order to get bailout funds from the European Central Bank. Europe's ongoing difficulties were also reflected in weak economic data from September.

Bottom-up stock selection remains essential

T. Rowe Price managers prefer to direct their attention to bottom-up stock selection rather than rely too heavily on general economic themes and policy decisions. U.S. stocks in general look attractive relative to other investment areas. As we approach the end of the year, fund managers have positioned portfolios in sectors and stocks with good earnings prospects and the potential for continued long-term growth.

U.S. Stocks¹
Index²	Friday's Close	Week's Change	% Change Year-to-Date
DJIA	13610.15	173.02	11.40%
S&P 500	1460.93	20.26	16.17%
NASDAQ Composite	3136.19	19.96	20.38%
S&P MidCap 400	996.63	6.55	13.32%
Russell 2000	843.13	4.18	13.82%

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 October 5, 2012

Treasury yields rise after labor report, while TIPS post strong returns

The Treasury market traded in a narrow range for much of the week, as weak economic news from abroad and uncertainty about proposed bailout measures for Spain's debt counterbalanced stronger-than-expected U.S. economic data. Yields climbed on Friday after a strong Labor Department report, cited below. Treasury inflation protected securities, however, delivered excellent returns for the week, aided by a jump in the prices of many commodities.

Tax-free yields decline; issuance accelerates for riskier bonds

Municipal yields continue to grind lower as the technical environment remains supportive. Supply has been constrained with investor demand persisting. Tax-free yields, however, remained above Treasury yields for both 10- and 30-year maturities, although the gap is tightening. Meanwhile, new issues were well received in the U.S. investment-grade and emerging market bond sectors, pointing to a continuation of strong market demand. Within emerging markets, riskier credits were somewhat volatile during the week. In particular, Venezuela came under increased investor focus as the country prepared for its October 7 presidential election. In line with market expectations, Russia's central bank decided to keep its key interest rate unchanged after hiking it in August. High yield new issuance continued at a rapid pace. Strong demand has allowed underwriters to structure new deals with issuer-friendly terms.

Good news on the labor front

The Labor Department reported that the unemployment rate dropped in September to 7.8% from 8.1% a month earlier, the lowest level since January 2009. A survey of business establishments revealed that employers added 114,000 jobs to their payrolls last month while data for July and August were revised to show 86,000 more jobs created than previously reported. The news was better than expected, with weekly hours up, boosting both income and production. Until now, housing had been the only sector of the economy exhibiting signs of life, so the data from the labor front possibly signaled better times ahead for a broader swath of the economy.

U.S. Treasury Yields¹
Maturity	October 5, 2012	September 28, 2012
2-Year	0.26%	0.23%
10-Year	1.73%	1.63%
30-Year	2.96%	2.82%

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, October 5, 2012.

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International Market

Week Ended September 28, 2012

International Stocks

Foreign stock markets closed lower for the week ending September 28, 2012 with the broad international measure, the MSCI EAFE Index (Europe, Australasia, and Far East), losing -2.65%.


Region/Country	Week's Return	% Change Year-to-Date
EAFE	-2.65%	10.59%
Europe ex-U.K.	-4.06%	12.79%
Denmark	-2.02%	27.64%
France	-5.24%	10.71%
Germany	-4.02%	21.74%
Italy	-6.03%	3.78%
Netherlands	-3.71%	10.71%
Spain	-7.40%	-4.70%
Sweden	-2.28%	17.48%
Switzerland	-2.46%	12.43%
United Kingdom	-2.54%	10.67%
Japan	-1.34%	2.43%
AC Far East ex-Japan	0.37%	15.21%
Hong Kong	1.37%	21.40%
Korea	0.54%	15.91%
Malaysia	0.25%	10.18%
Singapore	-1.31%	26.95%
Taiwan	-0.29%	15.87%
Thailand	0.95%	27.47%
EM Latin America	-1.83%	4.34%
Brazil	-3.31%	-3.13%
Mexico	1.08%	22.04%
Argentina	-4.19%	-45.79%
EM (Emerging Markets)	-0.37%	12.33%
Hungary	-2.18%	24.66%
India	2.01%	25.36%
Israel	2.48%	-0.07%
Russia	-3.26%	11.57%
Turkey	-1.86%	39.23%

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 0.12%.


Region/Country	Week's Return	% Change Year-to-Date
Developed Markets	0.12%	3.69%
Europe
Denmark	0.29%	1.04%
France	-0.37%	6.38%
Germany	0.00%	2.39%
Italy	-1.28%	14.19%
Spain	-2.02%	-0.44%
Sweden	0.62%	6.44%
United Kingdom	0.31%	7.07%
Japan	0.66%	0.74%
Emerging Markets	0.39%	14.33%
Argentina	-2.18%	14.12%
Brazil	0.07%	10.34%
Bulgaria	0.03%	7.98%
Russia	0.26%	13.24%

International Currency Markets

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


Currency	Close (September 28, 2012)	Week's Return (U.S. $)	% Change Year-to-Date (U.S. $)
Japanese yen	77.800	-0.46%	1.11%
Euro	1.2865¹	0.95%	0.90%
British pound	1.6148¹	0.66%	-3.91%

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.