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Week Ended November 30, 2012

Week Ended December 7, 2012

Stocks flat as investors worry that the fiscal-gridlock Grinch will steal the recovery

The large-cap indexes generated modest gains for the week as investors awaited a resolution to the upcoming "fiscal cliff" of automatic spending cuts and higher taxes scheduled to take effect at the end of the year. However, the stock of heavily weighted Apple suffered further declines and helped drag the technology-heavy Nasdaq to a modest loss.

Jobs machine pushing recovery forward

The week's economic signals were mixed, but the most closely watched data point—the November jobs report—was generally encouraging. Markets rose early on Friday after the Labor Department reported that employers added 146,000 jobs in November, a number higher than many expected given the disruptions caused by Hurricane Sandy. October numbers were also revised higher. T. Rowe Price economists note that private payroll gains have continued at a pace of roughly 150,000 per month in 2012, despite some significant volatility early in the year. This pace will bring down the unemployment rate by roughly one-half of a percentage point per year if it persists.

But businesses and consumers worry about derailment

Investors continued to worry that gridlock over fiscal policy might prove to be the recovery's undoing, however. Discouraging data on manufacturing activity early in the week drove markets lower and suggested that the global economic slowdown is taking a toll on businesses. It was also interpreted by some as evidence that companies are holding back production while waiting to see if policymakers will avoid going over the fiscal cliff. Service sector data released later in the week was more positive and appeared to help stocks recover some of their losses, but a decline in a gauge of consumer sentiment indicated that political maneuvering might be constraining household spending.

Asian shares rebound as gears catch in China and Japan

Asian markets scored solid gains for the week. Chinese shares rallied after an economic think tank estimated that the economy will grow by 8.2% next year, an improvement from the 7.7% pace anticipated for 2012. Japanese shares also rallied in response to a decline in the yen, the strength of which has made Japanese goods less competitive in the world economy. Investors have been encouraged by gains for the Liberal Democratic Party in Japan, which has vowed to push for a cheaper yen and looser monetary policy. T. Rowe Price Tokyo-based analysts note, however, that the strength of the yen also depends on U.S. monetary policy and thus is not entirely in the hands of Japanese policymakers.

U.S. Stocks¹
Index²	Friday's Close	Week's Change	% Change Year-to-Date
DJIA	13155.13	129.55	7.67%
S&P 500	1418.07	1.80	12.76%
NASDAQ Composite	2978.04	-32.20	14.31%
S&P MidCap 400	1002.48	2.47	13.99%
Russell 2000	822.16	0.17	10.99%

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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Week Ended December 7, 2012

Fiscal cliff and jobs dominate U.S. bond market

Treasury bonds extended their recent gains for much of the week as the market remained wary of Washington's ability to reach a budget compromise that would avert the year-end fiscal cliff (a mix of tax increases and spending cuts)—or at least soften its economic impact. However, Treasuries sold off sharply on Friday following a stronger-than-expected jobs report, and yields ended the week close to where they ended a week earlier. The investment-grade bond market continues to be influenced by fiscal concerns and heavy issuance. Demand was firm, particularly for high-quality new issues with shorter maturities. Supply for the week came in slightly ahead of expectations, but many analysts believe that new issuance will decline for the rest of the year.

Municipals pause for breath, but emerging markets bonds sound despite South American maladies

The high-quality tax-free market took a bit of a break, as demand was slightly less robust than in recent weeks. Still, investors' appetite for municipal bonds remains generally high, especially in the primary and high yield markets. The yields on high-yield tax-exempt securities are attractive relative to most other fixed income sectors. Emerging markets bonds continued to perform well. Argentine bonds rebounded a bit after a U.S. appeals court stated that the country does not have to post collateral in an escrow account as part of its ongoing battle with bondholders. Venezuelan debt was supported by growing health concerns surrounding President Hugo Chavez, who has often frustrated investors with unfriendly market policies.

Job growth up, unemployment down, but news is mixed

The U.S. economy added 146,000 new jobs in November, and the unemployment rate slid from 7.9% to 7.7%, its lowest level since 2008, according to the Labor Department. While the results were greeted with enthusiasm, they were somewhat mixed since a growing number of people have dropped out of the labor market. T. Rowe Price estimates that the current pace of job growth could be enough to reduce the unemployment rate by roughly one-half of a percentage point per year. This is roughly the pace built into the Federal Open Market Committee's latest economic projections. Therefore, we believe that the Federal Reserve will maintain its program of buying $40 billion worth of mortgage-backed securities a month. The Fed may also begin to purchase as much as $45 billion worth of Treasury securities each month to replace an existing program scheduled to expire. The Fed has indicated that asset purchases will continue until the outlook for the labor market improves "substantially."

U.S. Treasury Yields¹
Maturity	December 7, 2012	November 30, 2012
2-Year	0.24%	0.25%
10-Year	1.63%	1.61%
30-Year	2.81%	2.81%

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, December 7, 2012.

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Week Ended November 30, 2012

International Stocks

Foreign stock markets closed higher for the week ending November 30, 2012 with the broad international measure, the MSCI EAFE Index (Europe, Australasia, and Far East), gaining 1.21%.


Region/Country	Week's Return	% Change Year-to-Date
EAFE	1.21%	14.23%
Europe ex-U.K.	1.38%	18.70%
Denmark	0.42%	28.69%
France	1.31%	18.51%
Germany	1.77%	26.99%
Italy	1.24%	9.52%
Netherlands	1.90%	17.97%
Spain	0.81%	0.08%
Sweden	0.98%	18.35%
Switzerland	1.85%	19.93%
United Kingdom	1.02%	12.97%
Japan	0.57%	2.90%
AC Far East ex-Japan	1.42%	18.31%
Hong Kong	0.40%	27.14%
Korea	1.44%	15.54%
Malaysia	0.28%	9.82%
Singapore	3.42%	27.17%
Taiwan	3.82%	16.61%
Thailand	2.75%	27.19%
EM Latin America	-0.61%	2.24%
Brazil	-1.19%	-6.87%
Mexico	0.36%	23.97%
Argentina	9.57%	-47.03%
EM (Emerging Markets)	1.13%	13.08%
Hungary	2.58%	26.70%
India	6.87%	25.99%
Israel	2.13%	2.41%
Russia	-0.20%	7.75%
Turkey	3.47%	54.17%

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 0.62%.


Region/Country	Week's Return	% Change Year-to-Date
Developed Markets	0.62%	2.18%
Europe
Denmark	0.81%	3.03%
France	1.22%	9.03%
Germany	0.74%	3.84%
Italy	1.81%	20.76%
Spain	1.80%	5.06%
Sweden	-0.11%	4.79%
United Kingdom	0.73%	6.33%
Japan	0.04%	-4.73%
Emerging Markets	1.03%	17.01%
Argentina	1.61%	-3.27%
Brazil	0.49%	12.45%
Bulgaria	0.14%	9.07%
Russia	0.65%	15.64%

International Currency Markets

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


Currency	Close (November 30, 2012)	Week's Return (U.S. $)	% Change Year-to-Date (U.S. $)
Japanese yen	82.470	0.12%	6.71%
Euro	1.3006¹	-0.37%	-0.19%
British pound	1.6027¹	-0.09%	-3.12%

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.