Markets went higher last week after central bankers around the world reassured investors that they would not kill the economic recovery with higher interest rates. More volatile small and mid-cap stock indices performed even better than the S&P 500. While the markets continued with the previous week's selloff on Monday, they started to turn around on Tuesday when the head of the Bank of England suggested that markets were overacting to the Federal Reserve's recent statements. On Wednesday, Mario Draghi, the President of the European Central Bank, gave investors more reason to be optimistic when he stated that the ECB had no plans to tighten its loose monetary policy. Then on Thursday, the head of the New York Federal Reserve Bank reassured investors that even the US central bank wouldn't end its aggressive monetary policy if the economy grew slower than expected. That was part of the reason why market reacted favorably, when the Commerce Department's final numbers for first quarter growth were revised down from an annual rate of 2.4% to 1.8%. There was also positive news relating the US consumers and the housing market. Consumer sentiment increased to 84.1 in June, while consumer spending rose 0.3% in May and personal income increased by 0.5%. In addition, new home sales increased by 476,000 and the S&P Case Shiller Housing Price Index rose by 1.7%. Prices of copper and gold continue to weaken, with gold having lost over a third of its value from its peak above $1,900 an ounce in September of 2011.
The bond market also seemed to cool down after the reassuring words from central bankers. While short-term yields didn't change much, the 30-year yield did fall by the end of last week. Prices for investment grade corporate bonds, municipal bonds and high yield debt were all volatile at the start of the week but experienced a steady rally later on as investors reacted favorably to the comments of central bankers. Emerging market debt benefited from these same trends and also because the central bank in China stepped in to help reduce fears about a lack of interbank liquidity in the country.
*Indexes are from Reuters and Yahoo! Finance 4pm closing data
*Gold prices are from EcoWin and J.P. Morgan Asset Management
*Treasury rates are from Bloomberg.com
*Municipal and high yield rates are from Barclays Capital
*30 year mortgage rate comes from the Mortgage Bankers Association (MBA)
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