A somewhat fuzzy global economic picture developed last week. In the U.S., better-than-expected results were reported in terms of initial jobless claims, the unemployment rate, factory orders and ADP employment. But nonfarm payrolls and the ISM manufacturing index disappointed.

International economic data was also mixed. Russia and China PMI, as well as Eurozone manufacturing PMI, came in better than expected. But UK manufacturing PMI, Brazil’s industrial production and Mexico’s GDP failed to meet expectations.

In the U.S. equity market, technology stocks outperformed following better-than-expected first-quarter earnings from tech bellwether Apple. Consumer staples underperformed, however, as rising input costs and limited pricing power squeezed quarterly results for companies in the sector.

Overseas, European stocks performed best due to continued accommodative monetary policy from the European Central Bank. But emerging markets equities struggled as the rising U.S. dollar hurt emerging markets’ currencies.

In the fixed-income arena, long-duration Treasurys benefited from falling interest rates. Emerging markets debt underperformed, however, as bond investors reduced their risk exposure.

GAIN: Active Asset Allocation
Global stock markets were generally flat for the week, despite some ups and downs around various corporate earnings announcements and geopolitical developments. Overall, markets at the moment seem to be range-bound with little direction. Small-caps performed well relative to large-caps, in part because they face less big-picture headline risk than do large-cap stocks. Growth stocks also outperformed value stocks for the week.

In the bond market, there was little separation between sector returns. The 10-year U.S. Treasury yield remained below 3% and much of the recent economic data has been mixed—suggesting that the Federal Reserve Board may be able to take its time making monetary policy adjustments. We continue to favor corporate credits, but are a bit more neutral on duration.

In addition, the U.S. dollar has been strong lately—due in part to expectations for higher inflation—and we are monitoring the dollar’s behavior.

PROTECT: Risk Assist
Last week was quiet, overall, with the Risk Assist portfolios maintaining small de-risked positions across the board. We updated our volatility forecasts last week. They were little changed, leaving most models right between de-risk and re-risk levels.

Expected market volatility moved slightly lower week over week, which tends to occur when an earnings season begins to wind down and uncertainty dissipates. The CBOE Volatility Index (VIX) finished the week at around 15, compared to its long-term average of just over 19.

SPEND: Real Spend
Bond yields were flat across the yield curve last week, with global stock indices and broad-based bond indices posting similar returns. Global stock indices continue to lead performance—up approximately 14% during the past 12 months, versus a slightly negative return for bond indices.

The Federal Reserve Board’s preferred measure of inflation—core PCE—was released last week for the month of March. It showed that inflation over the past 12 months rose by 1.9%—in line with expectations, and 0.3% higher than the year-over-year figure for February.

The Fed statement following its policy meeting last Wednesday contained a few brief comments regarding inflation. The Fed stated that it would accept “symmetric” inflation around its target inflation rate of 2%—implying that a mild overshoot the target would not greatly concern them.

Most fixed-income yield investments were flat for the week while emerging markets bonds fell nearly 1%, for example. That said, equity yield investments rose slightly (with both the REIT and global infrastructure sectors outpacing global stocks).

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