William Riegel, Head of Equity Investments
Lisa Black, Head of Global Public Fixed-Income Markets
November 21, 2012
The week began with U.S. and global equity markets surging 2% as Congressional leaders and President Obama offered encouraging comments about fiscal-cliff negotiations. On Tuesday, markets began to pull back modestly from Monday’s gains and finished flat. With the trading week shortened to three and a half days and transaction volumes light, markets are essentially in a wait-and-see mode.
Congress is in recess for Thanksgiving, so there is little prospect of major news on the fiscal front until after the holiday. However, in a November 20 speech, Federal Reserve Chairman Ben Bernanke warned that uncertainty surrounding the fiscal cliff is already hurting the U.S. recovery, and he urged lawmakers and the president to strike a compromise quickly. In the wake of Bernanke’s remarks, U.S. Treasury prices dropped and their yields rose, with the bellwether 10-year yield rising to 1.66% as of November 20, after closing at a two-month low of 1.58% the previous week.
More solid gains for the U.S. housing market
Data released during the week showed the U.S. housing recovery is continuing to pick up steam:
In Europe, a downgrade for France and a delay for Greece
France and Greece were the primary focus in Europe.
France’s sovereign credit rating was cut from “AAA” to “AA1” by Moody’s Investors Service, matching the downgrade announced by Standard & Poor’s in January 2012. Market reaction to the Moody’s decision was negligible, as it had long been expected and was already priced in. The yield on the 10-year French government bond barely rose in response to the news.*
Greece was the subject of a meeting between European Union finance ministers and the International Monetary Fund (IMF) to determine whether, when, and under what conditions Greece would receive its next payment of bailout funds. The meeting ended on the morning of November 21 without resolution, resulting in yet another delay in the ongoing Greek debt drama. Discussions are set to resume on Monday, November 26.
Looking ahead: Fiscal cliff, eurozone, oil prices, Hurricane Sandy’s impact
After the relative lull of Thanksgiving, we expect to see investors refocus attention on a number of key macro themes that have the potential to drive markets in the near- and medium-term:
*Note: As of the most recent quarter-end (9/30/2012), TIAA-CREF’s fixed-income mutual funds and variable annuity accounts had 0% exposure to French sovereign debt. Exposure to French corporate and other debt was minimal, ranging from 0% to 0.48% of the total portfolio assets of any one fund or account. Within the TIAA General Account, exposure to French sovereign date equaled 0.21% of total portfolio assets as of 9/30/12, while total exposure to France (including corporate debt) was 0.64%.
The holdings information provided above is as of the date indicated, and may not reflect the current holdings of the respective funds and annuities.
All TIAA-CREF investment products are subject to market risk and other risk factors.
The TIAA General Account is an insurance company account, does not present an investment return, and is not available to investors.
The information provided herein is as of November 21, 2012.
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