Mixed Results Highlight a Quiet Week for Global Markets

U.S. economic data was mixed last week. Durable goods orders, existing home sales and revised third-quarter GDP growth all came in better than was generally anticipated. However,consumer spending, personal incomes and initial jobless claims were disappointing.

The Dow Jones Industrial Average hit an all-time high on Tuesday and was fewer than 13 points from reaching the historical 20,000 level before giving back some of those gains later in the week.

Overseas, economic reports from Europe were much better than expected. Surveys such as consumer confidence and IFO Business Surveys showed higher-than-expected optimism from the European business community. In addition, retail sales in Italy were stronger than anticipated.

GAIN: Active Asset Allocation

Global equity markets were generally flat during the week leading up to the holidays, with U.S. indices slightly outperforming their foreign peers. Volatility was subdued, with the CBOE Volatility Index (VIX) retreating to around 11—a historically low threshold that the index has fallen below just 2% of the time. We remain bullish on global stocks, and continue to overweight value stocks and small-company stocks.

In the fixed-income markets, the yield on the 10-year Treasury note finally took a breather after rising for six consecutive weeks. Corporate bonds outperformed Treasuries last week. We remain overweight in both the high-yield sector and the broader corporate bond sector.

Elsewhere, alternative asset classes, such as gold and real estate, continued to struggle last week.

PROTECT: Risk Assist

The Risk Assist portfolios continue to be positioned to participate in the markets, with overweights in small-cap stocks, high-yield bonds and preferred securities. We expect to maintain these positions as we move into 2017.

SPEND: Real Spend

Real Spend portfolios had a quiet week leading up to the holidays, continuing to ebb and flow along with the global equity markets.

Equity holdings represent a greater percentage of the Real Spend portfolios than do fixed income holdings. This is because a goal of Real Spend is to seek to generate growth of capital during retirement as key costs, such as healthcare, rise. Consider these findings:

• Healthcare makes up 13% of the annual expenses for individuals over the age of 65, according to the Consumer Expenditure Survey from the Bureau of Labor Statistics in 2014-2015.
• Medical costs are expected to rise at a rate of 6.5% per year, according to a 2016 report by the PwC Health Research Institute. Under that assumption, $1,000 in healthcare costs today could be expected to hit $3,520 in 20 years.