Rising geopolitical tension between the U.S., Syria and Russia as well as between the U.S. and North Korea fueled demand for so-called “safe haven” assets last week. Gold prices rose their highest levels since last November (see the chart below). Bond yields fell, boosting both bond prices and interest-rate-sensitive sectors of the market such as REITs.

Gold Approaches its November Highs

In addition, oil extended its recent gains early in the week due to geopolitical concerns and because of growing expectations that big oil producers would extend their recent output cuts to mitigate the risk of an oversupply of oil. Oil’s recent rally has benefited commodity-focused equities.

Meanwhile, global political uncertainty took a toll on emerging markets last week—especially Russia and South Korea.

In Europe, economic data was mixed.

Germany’s ZEW survey of investor and analyst expectations for economic developments came in much stronger than expected, as did German industrial production.

Producer prices in the UK were also stronger than expected–a sign of a strengthening economy.

France, Italy and the UK reported soft industrial production numbers.

In the fixed-income market, lower interest rates benefited corporate credits and longer-duration bonds, in particular. In contrast, international government bonds and TIPS (Treasury inflation-protected securities) underperformed the broader fixed-income market. Currencies had a negative effect on international Treasuries, while softening expectations for inflation in the short-term hurt TIPS.

GAIN: Active Asset Allocation

Global stocks ended the week flat as investors digested the latest geopolitical risks and awaited the corporate earnings season. That said, foreign equity markets generally held up better than the U.S. market.

Interest rates fell for the third consecutive week, helping boost bonds to their best returns in five weeks. Overall, corporate bonds held up well, although high-yield debt was generally flat.

We are monitoring the markets closely as they assess and digest factors such as strong returns from the first quarter of the year, growing political and geopolitical risks, and upcoming corporate earnings.

PROTECT: Risk Assist

Rising global political concerns caused stock market volatility to rise last week. The CBOE Volatility Index (or VIX) rose above 15 for the first time since last November, right around the election. However, the index remained below its historical average and the Risk Assist models remained fully invested.

It’s interesting to note that large, institutional investors appear to be well-hedged as we approach earnings season and the first round of elections in France. As seen in the VIX reading, implied volatility increased last week—but realized volatility has not risen enough to support that move. Therefore, the increase in implied volatility may be due to increased hedging activity by large investors.

SPEND: Real Spend

10-year Treasury bond yields have fallen since the end of March, giving the broad fixed-income market a tailwind that has enabled it to outpace the broader global equity markets so far this month.

Falling yields have also provided support for dividend-paying stocks, which are outpacing the broader market quarter-to-date. This has been a positive for Real Spend, as dividend stocks make up the largest single ETF position in the Real Spend ETF portfolios.

Inflation expectations have also diminished recently—with the largest reductions occurring last week. Multiple market prices are now betting that inflation will fall in the second quarter of 2017.