Week Ended December 28,
2012
U.S. stocks fall as
pessimism grows over fiscal cliff deal
U.S. stocks fell during a
holiday-shortened week as pessimism rose that lawmakers would reach a deal in
time to avert the approaching fiscal cliff, jeopardizing an already weak
economic recovery. Stocks fell every day this week as investors focused on events
in Washington, where President Obama and members of the Senate gathered in a
last-ditch attempt to hammer out a deal before big tax increases and spending
cuts go into effect on January 1.
On Friday afternoon,
President Obama reportedly met with Congressional leaders and offered a
scaled-back budget that would avoid some of the effects of the tax and spending
changes that begin in January. The Republican-led House of Representatives is
scheduled to meet on Sunday, December 30. But with both parties' leaders
repeatedly warning this week that time was running out and blaming the other
side for the impasse, investors appeared to bet that a budget deal
was unlikely.
This week's economic data
showed that the nation's recovery was continuing. Pending home sales rose for
the third straight month in November to their highest level in almost three
years, the National Association of Realtors reported Friday. Separately, a
gauge of business activity in the Chicago area rose to a four-month high, above
forecasts. Given widespread agreement that failure to resolve the fiscal cliff
will tip the U.S. economy back into recession, however, most investors brushed
off the favorable data.
|
U.S. Stocks1 |
|||
|
Index2 |
Friday's Close |
Week's Change |
% Change |
|
DJIA |
12937.96 |
-252.88 |
5.90% |
|
S&P
500 |
1402.43 |
-27.72 |
11.52% |
|
NASDAQ
Composite |
2960.31 |
-60.70 |
13.63% |
|
S&P
MidCap 400 |
1004.07 |
-17.22 |
14.17% |
|
Russell
2000 |
832.42 |
-13.78 |
12.38% |
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 December 28,
2012
Treasury yields fall as
fiscal cliff deal appears unlikely
Treasury yields declined
this week as investors grew less hopeful that U.S. lawmakers would reach a deal
to avert the approaching fiscal cliff, jeopardizing an already weak economic
recovery. Longer-term Treasury prices jumped on Thursday after Senate Majority
Leader Harry Reid indicated that it was unlikely a deal could be forged in the
final days of the year. German and UK sovereign debt similarly drew demand from
investors seeking "safe haven" assets.
Outside of government bond
markets, activity was virtually nonexistent. High yield secondary trading was
extremely limited and new issuance ground to a halt, as was expected in a
holiday-shortened week. However, new high yield issuance hit an all-time high
for the year. Municipal bonds also hit a holiday lull, with extremely light
trading and yields virtually unchanged.
Fiscal cliff aside,
near-term trends appear favorable
Most bond sectors appear to
be fully valued, making it difficult to find attractive opportunities for
return. Despite rich valuations, favorable supply and demand trends could drive
further returns for bonds over the near term, particularly if global central
banks continue their accommodative policies. We believe that the Federal
Reserve's latest round of quantitative easing will not have a meaningful impact
on the economy because interest rates are already low. However, the added
liquidity could provide support for higher-risk assets.
Our overall view is that
the U.S. economy will slowly improve, China's economy will stabilize in the
coming months, and the eurozone will struggle for several more years as it gets
its fiscal house in order. Major risks include the U.S. fiscal cliff and debt
ceiling negotiations and uncertainty in global growth.
|
U.S. Treasury Yields1 |
||
|
Maturity |
December 28, 2012 |
December 21, 2012 |
|
2-Year |
0.25% |
0.27% |
|
10-Year |
1.71% |
1.76% |
|
30-Year |
2.88% |
2.94% |
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 21, 2012.
___________
Week Ended December 21,
2012
International
Stocks
Foreign stock markets closed higher for the week ending December
21, 2012 with the broad international measure, the MSCI EAFE Index (Europe,
Australasia, and Far East), gaining 1.3%.
|
|
||
|
Region/Country |
Week's Return |
% Change Year-to-Date |
|
EAFE |
1.30% |
18.03% |
|
Europe ex-U.K. |
1.29% |
23.11% |
|
Denmark |
-0.05% |
31.83% |
|
France |
0.99% |
23.41% |
|
Germany |
1.03% |
32.33% |
|
Italy |
2.96% |
13.95% |
|
Netherlands |
0.05% |
21.45% |
|
Spain |
3.64% |
5.79% |
|
Sweden |
3.26% |
23.16% |
|
Switzerland |
0.45% |
22.48% |
|
United
Kingdom |
0.69% |
15.56% |
|
Japan |
3.30% |
7.62% |
|
AC
Far East ex-Japan |
-0.91% |
20.82% |
|
Hong Kong |
-1.00% |
27.79% |
|
Korea |
-1.27% |
19.82% |
|
Malaysia |
0.32% |
11.90% |
|
Singapore |
-0.20% |
30.61% |
|
Taiwan |
-2.86% |
14.94% |
|
Thailand |
1.13% |
33.76% |
|
EM
Latin America |
1.68% |
8.61% |
|
Brazil |
2.33% |
-0.10% |
|
Mexico |
0.68% |
29.78% |
|
Argentina |
-0.02% |
-37.44% |
|
EM
(Emerging Markets) |
0.03% |
17.17% |
|
Hungary |
-1.19% |
21.72% |
|
India |
-1.33% |
24.09% |
|
Israel |
-2.30% |
-1.27% |
|
Russia |
0.82% |
13.60% |
|
Turkey |
-0.38% |
60.64% |
International
Bond Markets
International bond markets in developed countries were lower
this week, with the J.P. Morgan Global Government Bond Less U.S. Index losing
-0.01%.
|
|
||
|
Region/Country |
Week's Return |
% Change Year-to-Date |
|
Developed
Markets |
-0.01% |
1.98% |
|
Europe |
|
|
|
Denmark |
0.40% |
4.24% |
|
France |
0.52% |
11.20% |
|
Germany |
0.47% |
5.49% |
|
Italy |
1.38% |
23.31% |
|
Spain |
1.33% |
7.56% |
|
Sweden |
1.86% |
6.21% |
|
United
Kingdom |
0.29% |
6.14% |
|
Japan |
-0.78% |
-6.67% |
|
Emerging
Markets |
0.00% |
17.71% |
|
Argentina |
0.71% |
6.03% |
|
Brazil |
-0.03% |
12.45% |
|
Bulgaria |
0.05% |
9.08% |
|
Russia |
0.89% |
17.01% |
International
Currency Markets
On the currency front, the U.S. dollar was weaker against the
major currencies for the week.
|
|
|||
|
Currency |
Close |
Week's Return |
% Change |
|
Japanese
yen |
84.120 |
0.74% |
8.54% |
|
Euro |
1.31751 |
-0.50% |
-1.49% |
|
British
pound |
1.61821 |
-0.38% |
-4.12% |
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.