A Mixed Week for Markets

There was more mixed data about the global economy last week. In the U.S, for example, consumer confidence and manufacturing PMI were stronger than expected while GDP growth for the second quarter was in-line with expectations. But initial jobless claims, as well as both new and existing home sales, were disappointing. Overseas, we saw disappointing Eurozone manufacturing PMI. That bad news was countered, however, by better-than-expected results from Germany’s Ifo business climate index, France’s manufacturing PMI, and Italy’s manufacturing confidence index.

In the U.S. markets, commodity-focused equities once again outperformed. Metals and energy companies benefited from a continued rise in commodity prices. In contrast, health care stocks underperformed due to uncertainty about the state of health care reform in Congress.

Internationally, developed markets (especially Europe) underperformed due to signs of slowing economic growth overall. However, emerging markets posted gains—with the Philippines, Singapore and India leading the way as global economic momentum builds.

In the fixed-income markets, international bonds outperformed as central banks outside of the U.S. remained committed to accommodative monetary policies designed to keep interest rates low and boost economic growth. Back home, U.S. interest rates rose on the prospect of monetary tightening by the Federal Reserve Board throughout the rest of the year. In that environment, long-duration bonds underperformed.

 

GAIN: Active Asset Allocation

Equity markets drifted higher early last week, with some of the year’s top-performing sectors—including technology and emerging markets—leading the way. Those segments of the market, as well as small-cap stocks, suffered some weakness later in the week, however. On down days, investors took profits from strong-performing sectors—in particular, the so-called FANG stocks (Facebook, Apple, Netflix and Google parent company, Alphabet).

Although we have maintained a sizable position in growth stocks and international equities, we are carefully monitoring the increased volatility in the technology sector and may look to reduce exposure.

Bonds were down slightly for the week, with no meaningful differences between the performance of Treasury securities and corporate bonds.

 

PROTECT: Risk Assist

As has been the case for much of the year, global equity markets last week continued to drift higher, and the Risk Assist portfolios remained unhedged to capture the markets’ gains when they are available. Looking ahead, we are considering adding some exposure to Asia-focused investments and/or the consumer staples sector due to potential opportunities in those asset categories.

 

SPEND: Real Spend

Long-duration fixed-income securities came under pressure last week as U.S. interest rates rose on the prospect of the Fed potentially tightening its monetary policy going forward. The losses in these bonds could potentially hurt investors who are chasing yields by investing heavily in them. Meanwhile, market expectations for inflation followed rates higher, ending the week near 2.3%.

The Real Spend portfolios hold overweight allocations in dividend-paying stocks, whose performance was dampened somewhat last week by rising rates.

With equities relatively flat for the week and fixed-income slightly down, the spread between global stocks’ 12-month return and broad-based fixed-income’s 12-month return remains in excess of 18%.

 

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Categories: Market Notes
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