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Morningstar Indexes: Weekly Market Report

Week ending June 8: Rising bond yields cause big drop by stocks.

Morningstar Indexes, 06/11/2007

Rising bond yields caused a sharp pullback in equity markets last week. The Morningstar US Market Index lost 1.9% for the week ending June 8, its worst slide in months. Long-term bond yields soared to their highest level in a year due to expectations of a stronger economy and fading hopes of any rate relief in the near future from the Federal Reserve, causing investors to reassess the market's outlook. Higher borrowing costs would eventually hurt companies' earnings. More immediately, the yield surge threatens to undermine the merger and acquisition boom that has benefited equities, especially small- and mid-cap stocks.

All nine Morningstar style indexes finished in the red. The Morningstar Large Growth Index held up the best with a 1.6% loss. The Morningstar Mid Value Index's 2.8% slide was the worst.

A recent report showing strong demand for consumer electronics was among the factors boosting some prominent technology-related stocks amidst the overall market slump. Apple AAPL rose 5.1% and NVIDIA NVDA., a designer of computer graphics chips, advanced 4.8%. The Morningstar Large Growth Index also got help from Internet giants Google GOOG, which gained 3%, and Amazon.com AMZN, which jumped almost 7%.

Utility stocks detracted heavily from the Morningstar Mid Value Index. Constellation Energy Group CEG and Ameren AEE were among the prominent losers in that interest rate-sensitive sector.

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