U

Week Ended November 30, 2012

Fiscal cliffhanger challenges stocks

Stocks finished the week and the month modestly higher but not before experiencing wide swings brought about by worries over the upcoming "fiscal cliff" of automatic tax hikes and spending cuts. The technology-heavy Nasdaq and the smaller-capitalization indexes fared better than the large-cap Dow Jones Industrial Average and the S&P 500.

Signs of impasse weigh on market

Whether or not the Obama administration and republicans in Congress would be able to agree on a budget deal to avoid the fiscal cliff continued to dominate investor sentiment. Comments suggesting that talks were at an impasse caused stocks to fall sharply at several points during the week. For example, markets declined on Tuesday following Senate Majority Leader Harry Reid's assessment that there had been "little progress" in talks and again on Thursday, after House Speaker John Boehner stated that the negotiations had seen "no substantive progress." Conversely, hints of compromise on either side helped send stocks sharply higher.

Health care sector remains under scrutiny

Despite the sector's reliance on federal funding, health care stocks provided a lift to markets later in the week. The health care sector has been under investor scrutiny due to the federal health care reform law. T. Rowe Price's health care analysts believe that, while drug firms and medical device makers will be challenged by new regulations, some segments of the health care market stand to benefit. For example, hospital profits may grow from wider insurance coverage, which should lower losses on treating patients who are unable to pay. Because hospitals have high fixed and low variable costs, treating additional insured patients should flow directly to the bottom line.

Coal suffers from natural gas and alternatives

Coal stocks enjoyed a rebound to end the week, but they have been among the market's worst performers over the past month. While the election results heightened worries over regulation, the massive growth of natural gas supply due to new drilling techniques has weighed on investor sentiment toward the industry for some time. Conversely, alternative energy shares have been among the markets best performers in recent weeks. T. Rowe Price's natural resources analysts are keeping a close eye on long-term supply and demand dynamics in the energy sector, and they believe the best approach for investors is to buy and hold fundamentally sound companies across a broad swath of commodity sectors.

U.S. Stocks¹
Index²	Friday's Close	Week's Change	% Change Year-to-Date
DJIA	13025.58	15.90	6.61%
S&P 500	1416.27	7.12	12.62%
NASDAQ Composite	3010.24	43.39	15.55%
S&P MidCap 400	1000.01	12.10	13.71%
Russell 2000	821.99	16.67	10.97%

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 30, 2012

Treasuries outperform corporates for first time since May

Treasury yields fell, reversing the previous week's upturn, amid disappointing messages about Washington's progress in resolving the nation's fiscal problems by year-end. The weekly gains (prices and yields move in opposite directions) capped a month in which Treasuries outperformed the broader investment-grade credit market for the first time since May. Investor demand for investment-grade corporates was firm in a week of large issuance. Some companies have been borrowing money at low rates to pay dividends before the end of the year in anticipation of higher taxes in 2013.

Other sectors also strong

Demand continued to outpace supply in the municipal market. There was some profit-taking in high yield bonds following a strong run, but a positive tone returned to the market this week as investors redeveloped their appetite for risk. High yield new issuance also picked up, as expected, after the Thanksgiving holiday. Activity was brisk in emerging markets securities, with several large issuers coming to the market. Argentine bonds retraced some of their recent losses after the country successfully petitioned for a delay of a U.S. court order requiring Argentina to repay bondholders of defaulted debt next month.

Third-quarter growth revised upward, but fourth quarter could weaken

U.S. economic growth in the third quarter was stronger than originally reported, according to the Commerce Department, advancing at an annualized rate of 2.7% instead of 2.0%. Corporate profits at the end of September expanded 8.7% from a year earlier, thanks to income generated from production activities. The gains resulted in a modest increase in new jobs, but the unemployment rate of 7.9% remains above historic norms. In addition, home prices enjoyed the largest percentage gain in more than two years, according to the S&P/Case-Shiller Index. Record low mortgage rates, a slightly improving jobs market, rising consumer confidence, and a reduction in foreclosed, new, and previously owned homes on the market all served to buoy the housing industry. That said, despite the recent gains, prices are still down 28.6% nationally from their peak in the first quarter of 2006.

The outlook for economic growth in the final quarter of 2012, however, is less favorable. The effects of Sandy, the powerful storm that ravaged large sections of the Northeast in October, are likely to have a negative impact on U.S. gross domestic product. Inventories are building and consumer demand has begun to slacken. The rate of corporate earnings growth is also slowing. Looming on the near horizon are the stalled negotiations in Washington over measures to resolve the so-called "fiscal cliff" issues by year-end. Broad tax increases, coupled with mandated spending cuts, threaten to plunge the economy into a recession, should they come to pass.

U.S. Treasury Yields¹
Maturity	November 30, 2012	November 23, 2012
2-Year	0.25%	0.27%
10-Year	1.61%	1.69%
30-Year	2.81%	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, November 30, 2012.

___________

Week Ended November 23, 2012

International Stocks

Foreign stock markets closed higher for the week ending November 23, 2012 with the broad international measure, the MSCI EAFE Index (Europe, Australasia, and Far East), gaining 4.81%.


Region/Country	Week's Return	% Change Year-to-Date
EAFE	4.81%	12.86%
Europe ex-U.K.	6.67%	17.08%
Denmark	4.98%	28.16%
France	7.43%	16.98%
Germany	7.31%	24.78%
Italy	7.30%	8.18%
Netherlands	6.06%	15.77%
Spain	6.48%	-0.72%
Sweden	7.26%	17.20%
Switzerland	5.30%	17.75%
United Kingdom	5.03%	11.82%
Japan	2.04%	2.32%
AC Far East ex-Japan	3.05%	16.66%
Hong Kong	3.17%	26.64%
Korea	4.03%	13.89%
Malaysia	-0.46%	9.51%
Singapore	2.47%	22.97%
Taiwan	3.74%	12.31%
Thailand	0.53%	23.78%
EM Latin America	2.90%	2.86%
Brazil	2.79%	-5.75%
Mexico	4.60%	23.52%
Argentina	1.97%	-51.66%
EM (Emerging Markets)	2.70%	11.82%
Hungary	0.31%	23.52%
India	-0.01%	17.89%
Israel	3.86%	0.28%
Russia	4.52%	7.96%
Turkey	0.35%	49.00%

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 0.14%.


Region/Country	Week's Return	% Change Year-to-Date
Developed Markets	0.14%	1.55%
Europe
Denmark	1.42%	2.20%
France	1.31%	7.71%
Germany	1.32%	3.08%
Italy	2.75%	18.62%
Spain	3.50%	3.20%
Sweden	1.99%	4.90%
United Kingdom	0.27%	5.56%
Japan	-1.38%	-4.77%
Emerging Markets	0.36%	15.82%
Argentina	8.16%	-4.81%
Brazil	0.09%	11.90%
Bulgaria	0.03%	8.92%
Russia	0.57%	14.90%

International Currency Markets

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


Currency	Close (November 23, 2012)	Week's Return (U.S. $)	% Change Year-to-Date (U.S. $)
Japanese yen	82.370	1.34%	6.59%
Euro	1.2959¹	-1.99%	0.18%
British pound	1.6012¹	-1.05%	-3.03%

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.