The U.S. stock market hit its highest level in 10 months last week, with the S&P 500 Index closing at 2119 on Wednesday. Recent gains were driven largely by investors’ optimism over Federal Reserve Board Chairman Janet Yellen’s remarks that the U.S. economy is making progress, and by indications that Fed policy makers may not rush to raise interest rates. Indeed, some investors now see December as the first month with at least even odds of a rate increase.

That said, the positive investor sentiment fueling stocks’ recent run-up may have peaked for the moment. Stock prices fell toward the end of last week as investors paused to consider the economic growth outlook ahead of a series of events that could set the tone for the next few months—including policy meetings by the Fed and the Bank of Japan, Britain’s vote to leave the European Union (“Brexit”), and U.S. political conventions.

In the fixed-income markets, demand for Treasury securities pushed Treasury prices higher and their yields lower. For example, the yield on the 10-year Treasury note fell to its lowest level since February. The rally in Treasuries was driven by renewed concerns over economic growth (poor jobs data, in particular) and the possibility of Brexit, which prompted investors to seek the perceived relative safety of U.S. government bonds.

Equity market indicators: Bullish, with an eye toward potential volatility

Our equity market indicators, while still bullish, have raised some caution flags in recent weeks. One example: A benchmark for gauging anticipated market volatility—the CBOE Volatility Index, or VIX—rose above 16 last week, suggesting that higher volatility may be coming. What’s more, investor sentiment has swung quickly from optimism to pessimism and back again throughout the year. Without clearer signs of stronger economic growth, we believe markets will remain susceptible to data surprises.

Further clouding the outlook for equities is uncertainty over the Brexit vote on June 23rd and key elections in the U.S., Spain, France and Germany. For example, the odds of Britain leaving the EU are currently about 50-50.

Horizon is generally positive about U.S. equities in relation to international stocks, due to the increased event risks that are impacting foreign stock markets. Emerging markets are a good example of the volatility seen in foreign stocks recently. While emerging markets are up more than 5 percent year-to-date, they are flat since the end of March and up 3 percent so far in June.

With respect to fixed income, we believe simple duration trades currently do not add value given soft economic data and the lack of clarity from the Fed about monetary policy. Instead, we are pursuing opportunities to enhance yield by investing in select corporate bonds that offer an attractive risk-return trade-off.