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 12, 2014

Stocks fall sharply alongside oil prices

Stocks fell sharply as concerns about the effect of declining oil prices on energy sector profits appeared to outweigh optimism over the beneficial impact of falling gas prices on consumer spending. The Standard & Poor's 500 Index recorded its first weekly loss since early October and its steepest weekly decline in over two years. While energy stocks are only modestly weighted in the S&P 500 Index-representing a bit more than 8% of the index as of the start of the month-they exerted a larger drag on it and the Dow Jones Industrial Average than they did on the technology-heavy Nasdaq Composite. The smaller-cap indexes also seemed to benefit more from the flip side of the decline, as smaller companies tend to rely more on the domestic economy and healthy consumer spending.

Supply and demand picture dims for oil stocks

Oil prices fell steadily through the week, dragging energy shares with them. The first big drop occurred Wednesday, after news about both supply and demand shook the market. The U.S. Energy Department reported a surprise increase in the nation's crude supplies in the previous week, suggesting that producers were not ramping down production quickly enough to stem a further decline in oil prices. At the same time, the Organization of Petroleum Exporting Countries (OPEC) lowered its estimate of global demand in the coming year and anticipated that demand would fall short of the group's production target by over one million barrels a day. The International Energy Agency lowered its own demand forecast on Friday, spurring a further sharp drop in oil and stock prices.

Other factors are also at work in oil price decline

T. Rowe Price energy analysts and managers observe that a sharp increase in North American shale oil production-excess production capacity that was planned in the last decade is coming into play at precisely the wrong time-and OPEC's refusal to cut its own output are two key reasons for the decline in oil prices. But they also note that other factors are at work. Russia and Venezuela have been forced to sell every drop they extract to support fragile economies, while Iraq and Libya, which largely halted production in the midst of political conflict, have largely come back online. Meanwhile, the sluggish global economy has resulted in relatively tepid demand growth-as opposed to the world's substantial ongoing demand for oil. They expect the long-term trend for oil prices to remain subdued, but they believe markets could see some short-term and temporary price volatility due to cyclical factors, such as an unexpected demand spike or a geopolitical crisis.

Further data on upside of oil price decline fail to sway sentiment

Investors had appeared to focus on the upside of falling oil prices over the previous weeks, but more data on such benefits to the broader economy failed to stem the turn in sentiment. Stocks did enjoy a brief bounce on Thursday, following news of a sharp rise in retail sales in November. The National Federation of Retailers also reported a healthy increase in sales over the "Black Friday" weekend as Americans took gas savings to the mall. On Friday, however, news of a jump in consumer sentiment failed to stem another steep decline in stocks. The Thomson Reuters/University of Michigan gauge of consumer sentiment reached its highest level in eight years, as consumer attitudes were boosted by hopes for higher wages as well as lower gas prices.

U.S. Stocks1
Index2 Friday's Close Week's Change % Change
Year-to-Date
DJIA 17280.83 -677.96 4.25%
S&P 500 2002.33 -73.04 8.33%
NASDAQ Composite 4653.60 -127.16 11.42%
S&P MidCap 400 1403.91 -38.36 4.57%
Russell 2000 1154.46 -25.96 -0.79%
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 12, 2014

Longer-maturity Treasuries rally

Ongoing worries about slowing global economic growth, coupled with increasing political uncertainty in Greece, helped fuel a rally in longer-term U.S. Treasuries. The yields on the 10- and 30-year Treasury securities reached 18-month lows. However, a strong November retail sales report, released on Thursday, resulted in some selling pressure on shorter-maturity Treasuries, which would experience the most significant negative price effects from a Federal Reserve rate increase.

Core eurozone sovereign bond yields reach record lows

The results of the European Central Bank's latest auction of inexpensive loans to banks through its targeted longer-term refinancing operation disappointed investors, improving the odds that the central bank will expand its bond purchase program to include corporate and sovereign debt. Yields on core eurozone sovereign bonds decreased to record lows on the news. However, the yield on the Greek 10-year government note increased above 9% after the country's government called for a presidential election in December-two months earlier than originally planned.

Commodities weakness drags high yield bonds down

The continuing fall in the prices of oil and other commodities dragged down the high yield bond market, where energy-related issuers account for a large proportion of most benchmark indexes. Mark Vaselkiv, portfolio manager of the T. Rowe Price High Yield Fund, anticipates that the high yield default rate will remain below 2% next year. However, he anticipates a spike in the default rate in 2016 if the price of oil falls further or stays at current levels for an extended period.

Russian rate increase can't stop ruble's decline

Emerging markets bonds lost ground amid the generally weaker economic news from around the globe. Russia's central bank raised interest rates by one percentage point in an effort to stem the decline in the ruble. However, the rate increase-the bank's fifth this year-was not enough to stop the currency's drop as the ruble reached a record low against the U.S. dollar. Chinese corporate bonds dropped sharply after China's government banned the use of lower-rated corporate debt as collateral to borro  cash.

U.S. Treasury Yields1
Maturity December 12, 2014 December 5, 2014
2-Year 0.54% 0.64%
10-Year 2.09% 2.31%
30-Year 2.74% 2.97%

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 12, 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.