Week Ended October 19, 2012

Stocks mixed as early gains evaporate

Stocks finished slightly higher for the week after initial enthusiasm over third-quarter earnings gave way to pessimism following some weaker earnings reports from prominent companies. The technology-oriented Nasdaq moved lower and fared worse than the broader indexes, while the S&P MidCap 400 enjoyed a decent gain.

Economic data help stocks start the week on a strong note

Stocks rose sharply to begin the week. Investors were encouraged by a report on U.S. retail sales in September, which showed a rise for the third month in a row. As some had predicted, sales of Apple's new iPhone helped fuel a particularly strong rise at electronics and appliance stores.

Housing recovery accelerates

The housing sector showed signs of strength, with measures of homebuilder sentiment and new home construction reaching their highest levels in four years. Factory production also increased in September at a faster rate than many had expected, according to the Federal Reserve.

Bank earnings boost sentiment

Another tailwind behind the markets was a stronger-than-expected gain in earnings for several large banks. Higher trading revenues and a pickup in mortgage issuance have benefited earnings in the sector. However, T. Rowe Price's financial services analysts believe companies in many financial industries may continue to struggle to generate earnings given that today's low interest rate environment is unlikely to change anytime soon.

Technology earnings disappoint and help reverse gains

Stocks headed sharply lower to end the week, following poor earnings results from some prominent technology firms. The decline in profits in the sector partly reflects the timing of software releases in the personal computer industry, but the weak global economy has also slowed corporate technology purchases. While technology stocks have outperformed the broader market year-to-date, T. Rowe Price technology managers continue to see promising longer-term trends in consumer and business spending, including increased smartphone and tablet computer penetration and for software-as-a-service applications for businesses.

U.S. Stocks¹
Index²	Friday's Close	Week's Change	% Change Year-to-Date
DJIA	13343.51	14.74	9.22%
S&P 500	1433.19	4.60	13.96%
NASDAQ Composite	3005.62	-38.49	15.37%
S&P MidCap 400	988.59	13.21	12.41%
Russell 2000	822.06	-1.09	10.98%

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 19, 2012

Treasury yields rise after encouraging economic reports

Treasury yields rose this week as a batch of upbeat economic reports spurred investors to rotate out of the safety of U.S. government debt into riskier assets. On Wednesday, the government reported that September housing starts jumped 15% to their highest level since July 2006, and that building permit applications climbed to their highest point in more than four years. Earlier in the week, an index of U.S. home builders' confidence surged to its highest level since June 2006, and September industrial output rose more than expected. Collectively, the reports provided fresh evidence that the U.S. economic recovery was picking up and the long-suffering housing market is firmly recovering. Economists at T. Rowe Price believe that September housing starts indicate that a broad-based cyclical recovery in new construction is under way, and has the potential to add up to 0.6% to gross domestic product (GDP) growth.

Overseas events this week also encouraged investors to take more risk: on Tuesday, Greece's prime minister said his country was close to reaching a deal with creditors to receive the next loan installment it needs to stay solvent. Moody's Investors Service pleasantly surprised markets on Wednesday when it said it would leave Spain's investment grade rating untouched. The news from Moody's, which many analysts had expected would relegate Spain to junk-bond status, sparked a strong price rally in Spanish government bonds. China also gave some encouragement, reporting third-quarter GDP growth of 7.4%, in line with forecasts.

High yield and corporates advance; munis stay resilient

In other credit sectors, high yield bonds performed well, taking a cue from strength in the stock market. Buoyant demand and limited supply continue to support the high yield market even though yields are hovering near all-time lows. New high yield issues continued at a rapid pace this week, and new deals attracted strong demand.

Investment-grade corporates performed in a similar manner to high yield, although the volume of corporate bond issues was lower and the deal terms were not as issuer-friendly compared with those in the high yield market. Emerging markets debt generally performed well this week. The primary market remained active and consisted mostly of corporate issuers. Municipal bonds showed resilience in a down market amid steady demand as interest in Treasuries waned. Investor demand for munis continues to be strong as yield-hungry investors search for yield in a low interest rate environment.

U.S. Treasury Yields¹
Maturity	October 19, 2012	October 12, 2012
2-Year	0.29%	0.26%
10-Year	1.77%	1.66%
30-Year	2.94%	2.83%

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 19, 2012.

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International Market

Week Ended October 12, 2012

International Stocks

Foreign stock markets closed lower for the week ending October 12, 2012 with the broad international measure, the MSCI EAFE Index (Europe, Australasia, and Far East), losing -2.07%.


Region/Country	Week's Return	% Change Year-to-Date
EAFE	-2.07%	10.76%
Europe ex-U.K.	-2.61%	14.45%
Denmark	-3.37%	28.65%
France	-2.66%	12.53%
Germany	-2.86%	23.12%
Italy	-3.07%	6.90%
Netherlands	-2.44%	13.33%
Spain	-4.66%	-4.65%
Sweden	-4.63%	13.94%
Switzerland	-0.72%	16.05%
United Kingdom	-1.90%	11.29%
Japan	-2.11%	-0.74%
AC Far East ex-Japan	-1.36%	14.32%
Hong Kong	-1.51%	20.47%
Korea	-3.85%	11.34%
Malaysia	-0.34%	11.57%
Singapore	-1.68%	25.82%
Taiwan	-3.34%	11.76%
Thailand	-1.53%	26.09%
EM Latin America	-0.92%	4.99%
Brazil	-0.35%	-2.76%
Mexico	-2.29%	23.84%
Argentina	-4.48%	-47.23%
EM (Emerging Markets)	-1.20%	11.72%
Hungary	0.62%	32.59%
India	-3.27%	24.26%
Israel	-1.97%	1.15%
Russia	-2.62%	10.91%
Turkey	2.84%	45.86%

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 0.15%.


Region/Country	Week's Return	% Change Year-to-Date
Developed Markets	0.15%	3.85%
Europe
Denmark	-0.19%	1.66%
France	0.04%	8.04%
Germany	-0.23%	3.11%
Italy	-0.26%	16.63%
Spain	-0.22%	2.50%
Sweden	-1.08%	4.59%
United Kingdom	-0.17%	6.53%
Japan	0.50%	0.03%
Emerging Markets	0.24%	15.79%
Argentina	-1.56%	16.39%
Brazil	0.33%	11.66%
Bulgaria	0.12%	8.40%
Russia	0.56%	14.78%

International Currency Markets

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


Currency	Close (October 12, 2012)	Week's Return (U.S. $)	% Change Year-to-Date (U.S. $)
Japanese yen	78.355	-0.43%	1.81%
Euro	1.2967¹	0.71%	0.11%
British pound	1.6088¹	0.65%	-3.52%

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.