Review current performance analyses and weekly statistics for stock and bond markets in the U.S. and abroad, including regional and broad-based international indexes and principal currency exchange rates.

Week Ended December 19, 2014

Powerful midweek rally boosts stocks

After threatening to continue the sharp decline that they had begun the previous week, stocks rallied powerfully at midweek and ended with substantial gains. Following assurances on Wednesday from the Federal Reserve that it would be "patient" in raising interest rates, the Standard & Poor's 500 Index and the Dow Jones Industrial Average managed their largest two-day gain since late 2011. The large-cap benchmarks ended the week relatively unchanged for the month, while the smaller-cap indexes boasted modest gains.

Oil slide further disrupts market

The slide in oil prices continued to weigh on energy stocks early in the week, and it began to pose another challenge for the market. The drop in oil has hit the Russian economy particularly hard, as the country depends on oil for roughly half of its export income. The Russian ruble plunged on Monday and Tuesday due to fears that the Russian financial system would be unable to cope with the decline-and unable to stem it with foreign assistance due to sanctions over the conflict in Ukraine. This sparked fears of a broader emerging markets currency crisis like the one that occurred in 1998, and not only the ruble, but the Turkish lira, Brazilian real, Indonesian rupiah, and other currencies sank to multiyear or record lows against the U.S. dollar.

Replay of 1998 emerging markets crisis is unlikely

T. Rowe Price credit analysts and portfolio managers generally agree that a replay of the 1998 emerging markets crisis is unlikely. They note that the fundamental condition of most of the developing countries whose debt experienced the worst losses in 2013 steadily improved this year. While some individual countries still have significant current account deficits, emerging markets on average maintain a current account surplus. Most developing countries now have flexible exchange rates and monetary policies, ample foreign exchange reserves, and relatively low debt burdens, all of which should help prevent systemic contagion as seen in the late 1990s.

Fed patience turns sentiment

In any case, investors' attention turned back to the U.S. on Wednesday following renewed signals from the Federal Reserve that an increase in short-term rates is unlikely in the near future and that increases will be moderate once they begin. Wednesday also brought news that consumer prices declined 0.3% in November, due in large part to the drop in oil prices that has hampered markets in recent weeks. The falling inflation data indicated that the Fed has considerable leeway in timing its rate increases, and it may have also reminded investors of the upside to consumer spending from falling gas prices.

Ruble rebounds; Greek departure from euro seems less likely

The Fed-driven boost in sentiment seemed to carry over into the end of the week, and signs of stabilization overseas boosted markets as well. The ruble recovered somewhat in response to intervention by the Russian government. While a large hike in interest rates by the Russian central bank had failed to stem the selling at the start of the week, sales of foreign exchange reserves appeared to gain some traction for the currency. Investors were also encouraged by assurances that the Greek opposition party would not guide the country out of the euro if it wins upcoming elections.

U.S. Stocks1
Index2 Friday's Close Week's Change % Change
Year-to-Date
DJIA 17804.80 523.97 7.41%
S&P 500 2070.67 68.34 12.03%
NASDAQ Composite 4765.38 111.78 14.10%
S&P MidCap 400 1449.31 45.40 7.95%
Russell 2000 1196.62 42.16 2.83%
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 19, 2014

Treasury yields rise on news of a "patient" Fed

After decreasing early in the week as a result of safe-haven buying amid volatile financial markets, Treasury yields increased following the Federal Reserve's post-policy meeting statement about remaining "patient" on raising interest rates, which markets interpreted as dovish. The Fed also included the closely watched "considerable time" language in its statement, although the central bank changed the context of the phrase by saying that its overall economic outlook is not significantly different from when it said that it would keep rates low for a "considerable time."

Intra-week rebound in emerging markets debt

Emerging markets bonds were generally positive in elevated volatility. Debt issued by developing countries was dramatically lower to start the week as a result of falling oil prices, poor liquidity, and currency turmoil in Russia, which hiked its benchmark lending rate by a staggering 6.5 percentage points in an effort to stabilize the plunging ruble. However, the bonds of the emerging markets that had experienced the worst declines—including Russia, Ukraine, and Venezuela—posted the sharpest rebounds later in the week.

High yield bonds remain volatile

Volatility also weighed on high yield bonds, which dropped steeply early in the week as oil prices continued to fall. The poor performance of energy sector bonds, which account for a large proportion of most high yield market indexes, dragged the benchmarks into negative territory for the year to date. However, the Fed's dovish statement seemed to trigger a rally that helped high yield bonds recover some of the early-week losses.

Poor liquidity hurts investment-grade corporate debt

Investment-grade corporate bonds lost ground amid poor liquidity. The lack of trading led to increased volatility, particularly in bonds from energy-related issuers as investors sorted through the implications of the ongoing decline in oil prices. Later in the week, the Fed's policy statement emboldened some investors to buy higher-quality bonds in the technology and energy sectors within the investment-grade corporate universe.

U.S. Treasury Yields1
Maturity December 19, 2014 December 12, 2014
2-Year 0.65% 0.54%
10-Year 2.17% 2.09%
30-Year 2.77% 2.74%

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 19, 2014.

Week Ended December 12, 2014

International Stocks

Foreign stock markets closed lower for the week ending December 12, 2014 with the broad international measure, the MSCI EAFE Index (Europe, Australasia, and Far East), losing -3.54%.

 
Region/Country Week's Return % Change Year-to-Date
EAFE -3.54% -4.96%
Europe ex-U.K. -4.05% -5.30%
Denmark -3.05% 10.33%
France -5.48% -10.05%
Germany -3.41% -9.14%
Italy -6.27% -8.09%
Netherlands -3.96% -3.47%
Spain -5.78% -2.82%
Sweden -3.00% -5.67%
Switzerland -2.19% 2.58%
United Kingdom -5.85% -8.58%
Japan -0.98% -3.06%
AC Far East ex-Japan -2.36% 2.02%
Hong Kong -2.11% 5.72%
Korea -2.34% -11.24%
Malaysia -1.59% -12.18%
Singapore 1.60% 2.71%
Taiwan -2.81% 8.02%
Thailand -5.70% 18.11%
EM Latin America -8.63% -15.95%
Brazil -10.00% -17.74%
Mexico -6.54% -12.64%
Argentina -13.89% 13.38%
EM (Emerging Markets) -4.78% -3.88%
Hungary -1.46% -19.78%
India -4.95% 24.00%
Israel 0.67% 25.26%
Russia -12.52% -42.73%
Turkey -4.32% 17.21%

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 2.07%.

 
Region/Country Week's Return % Change Year-to-Date
Developed Markets 2.07% -1.38%
Europe    
Denmark 2.92% 0.93%
France 2.32% 1.14%
Germany 2.48% -0.60%
Italy 0.30% 3.23%
Spain 0.74% 4.01%
Sweden 1.08% -4.68%
United Kingdom 2.69% 8.13%
Japan 2.67% -7.96%
Emerging Markets -3.35% 4.09%
Argentina -3.86% 16.58%
Brazil -2.89% 6.57%
Russia -4.16% -8.64%

International Currency Markets

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

 
Currency Close
(12/12/2014)
Week's Return
(U.S. $)
% Change
Year-to-Date (U.S. $)
Japanese yen 118.545 -2.42% 11.34%
Euro 1.24621 -1.34% 9.56%
British pound 1.56991 -0.68% 5.21%

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.