Week Ended November 16,
2012
Stocks decline, sending
some indexes into correction territory
Stocks endured another week
of losses as investors worried about the upcoming year-end fiscal cliff of
federal spending cuts and tax increases. The technology-oriented Nasdaq
Composite Index and the small-cap Russell 2000 Index dropped into correction territory,
commonly defined as a 10% decline from their recent peaks.
With earnings in, all eyes
are on Washington
With the third-quarter
earnings season nearly finished, investors kept a close eye on Washington,
looking for signs that the Obama administration and Republican leaders in the
House of Representatives might be able to reach an agreement on fiscal policy.
Automatic spending cuts and tax increases are due to begin in about six weeks
unless the two sides are able to find common ground on deficit reduction
measures. Both sides appeared to be unwilling to make concessions—at
least in public—which weighed on
investor sentiment.
Tax selling at work?
Anecdotal evidence
suggested that the week's declines were due in part to tax-related selling as
high-income investors sought to harvest gains in the current year before a
possible capital gains tax rate increase in 2013. Many investors hold the bulk
of their equities in tax-sheltered retirement accounts, however. This should
lessen, if not eliminate, the impact of higher capital gains tax rates.
The Apple effect?
Analysts note that the
technology giant Apple has a particularly large weighting in the Nasdaq—the
stock currently represents over 11% of the index and represented as much as 13%
at its peak. Recent declines in the stock have had a broad impact on the
markets—just as the rise in the stock price
boosted indexes earlier in the year.
Valuation remains a key
long-term driver
T. Rowe Price
managers acknowledge that the fiscal cliff and other near-term challenges are
likely to add to market volatility in the coming months. Nevertheless, they
note that valuations (price relative to earnings) remain the key variable in
long-term stock performance—measures that remain generally
favorable on a historical basis.
|
U.S.
Stocks1 |
|||
|
Index2 |
Friday's Close |
Week's Change |
% Change |
|
DJIA |
12588.31 |
-227.08 |
3.03% |
|
S&P
500 |
1359.88 |
-19.97 |
8.13% |
|
NASDAQ
Composite |
2853.13 |
-51.74 |
9.52% |
|
S&P
MidCap 400 |
952.68 |
-17.70 |
8.33% |
|
Russell
2000 |
776.76 |
-18.71 |
4.86% |
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.
___________
Week Ended November 16, 2012
Treasury yields decline as
fiscal cliff talks begin
Treasury prices rose over a
holiday-shortened week as investors braced themselves for political gridlock at
the start of deficit reduction talks and bought "safe-haven" assets.
On Friday, President Obama began talks with Congressional leaders about how to
avoid the looming fiscal cliff—a mix of automatic spending cuts and
tax increases totaling more than $600 billion that take effect in January.
Worries about a tortuous negotiating process have grown since President Obama
won re-election and Republicans retained control of the House of
Representatives on Nov. 6.
Economic reports and Middle
East tensions spark "safe-haven" buying
Mixed economic reports this
week also boosted the Treasury market. Industrial production in the U.S.
unexpectedly declined in October, the Federal Reserve reported, while gauges of
factory activity in the New York and Philadelphia areas contracted in November.
The impact of Hurricane Sandy, which knocked out power across the Northeast at
the end of October, was behind the declines in all three reports. Rising
tension in the Middle East also spurred "safe-haven" buying as the
conflict in the Gaza Strip suddenly escalated. On Friday, Palestinian militants
fired rockets into Jerusalem, while Israel called up thousands of army
reservists to prepare for a possible ground invasion of Gaza in the first major
conflict between the sides since 2008.
In other credit sectors,
fundamentals remain solid for investment-grade corporate bonds. However,
worries about the fiscal cliff and a surge of supply in recent months have left
a somewhat cautious tone in the market. We believe new issuance and liquidity
will start to decline for the rest of the year if seasonal patterns
hold true.
Eurozone worries weigh on
non-U.S. markets
Concerns about the eurozone
returned to the fore. Greece managed to avert a default through a successful
short-term Treasury bill auction, but borrowing costs in Spain resumed
climbing, with the yield on the 10-year bond approaching the psychologically
important 6% level. Germany auctioned two-year notes with a negative yield for
the first time since July, signifying that investors will pay an extraordinary
premium for low-risk assets.
Emerging markets debt had a
relatively quiet week. Most of the notable activity occurred in Argentina,
where investors are still focusing on a U.S. appeals court ruling made last
week that may impede the country's ability to make payments on its
dollar-denominated external debt.
|
U.S.
Treasury Yields1 |
||
|
Maturity |
November 16, 2012 |
November 9, 2012 |
|
2-Year |
0.23% |
0.26% |
|
10-Year |
1.58% |
1.61% |
|
30-Year |
2.73% |
2.75% |
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, November 16, 2012.
___________
Week Ended November 9, 2012
International
Stocks
Foreign stock markets closed lower for the week ending November
09, 2012 with the broad international measure, the MSCI EAFE Index (Europe,
Australasia, and Far East), losing -2.03%.
|
|
||
|
Region/Country |
Week's Return |
% Change Year-to-Date |
|
EAFE |
-2.03% |
9.89% |
|
Europe ex-U.K. |
-2.75% |
12.60% |
|
Denmark |
-0.66% |
25.47% |
|
France |
-2.93% |
11.38% |
|
Germany |
-3.69% |
19.89% |
|
Italy |
-4.45% |
2.85% |
|
Netherlands |
-2.51% |
12.74% |
|
Spain |
-5.33% |
-6.36% |
|
Sweden |
-2.33% |
13.05% |
|
Switzerland |
-0.89% |
15.15% |
|
United
Kingdom |
-2.42% |
9.79% |
|
Japan |
-1.43% |
-0.49% |
|
AC
Far East ex-Japan |
-1.10% |
15.27% |
|
Hong Kong |
-2.30% |
23.15% |
|
Korea |
-0.57% |
12.21% |
|
Malaysia |
-0.90% |
11.17% |
|
Singapore |
-1.17% |
23.19% |
|
Taiwan |
1.85% |
11.43% |
|
Thailand |
-0.73% |
25.02% |
|
EM
Latin America |
-2.67% |
2.45% |
|
Brazil |
-2.82% |
-4.93% |
|
Mexico |
-4.29% |
18.03% |
|
Argentina |
-2.54% |
-50.70% |
|
EM
(Emerging Markets) |
-1.34% |
11.21% |
|
Hungary |
-2.65% |
27.89% |
|
India |
-1.77% |
20.30% |
|
Israel |
-0.16% |
0.73% |
|
Russia |
-2.66% |
5.08% |
|
Turkey |
0.53% |
52.14% |
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
0.52%.
|
|
||
|
Region/Country |
Week's Return |
% Change Year-to-Date |
|
Developed
Markets |
0.52% |
2.54% |
|
Europe |
|
|
|
Denmark |
-0.34% |
0.84% |
|
France |
-0.38% |
6.24% |
|
Germany |
-0.51% |
1.79% |
|
Italy |
-1.04% |
14.98% |
|
Spain |
-1.63% |
-0.04% |
|
Sweden |
-0.19% |
4.22% |
|
United
Kingdom |
0.20% |
5.61% |
|
Japan |
1.63% |
-1.16% |
|
Emerging
Markets |
0.68% |
15.82% |
|
Argentina |
-2.72% |
-8.82% |
|
Brazil |
1.19% |
12.42% |
|
Bulgaria |
0.05% |
9.00% |
|
Russia |
0.26% |
14.72% |
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 |
79.450 |
-1.36% |
3.16% |
|
Euro |
1.27091 |
1.06% |
2.10% |
|
British
pound |
1.5911 |
0.81% |
-2.37% |
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.