The U.S economy continues to post better-than-expected results, and all signs point to continued domestic economic growth.

Last week, for example, three important indicators of economic conditions all topped analysts’ expectations:

• Housing starts (the number of new residential construction projects begun)
• Industrial production (output at factories, mines and utilities)
• The Philadelphia Fed Business Outlook Survey (a measure of manufacturing activity in mid-Atlantic states)

In addition, initial jobless claims came in better than expected and remain at historically low levels.

Meanwhile, earnings season moved into full swing, with just under 10% of companies in the S&P 500 index reporting their quarterly financial results. The financial services sector has reported generally better-than-anticipated numbers, due largely to cost-cutting initiatives and improving credit conditions.

Overseas, European Central Bank President Mario Draghi said the bank will continue its quantitative easing program while it waits to see if the recent uptick in European inflation will be sustained. Recent CPI reports have shown inflation growth to be at or above expectations.

GAIN: Active Asset Allocation

Global equities were flat for the week, with U.S. stocks outpacing international equities for the first time in four weeks. As the Trump presidency starts, many investors are anticipating decreased regulation and greater pro-U.S. rhetoric to ramp up.

Volatility rose for the week, but earnings news was handled with relative calm, as most companies reported generally positive results. We expect small-caps to benefit going forward, and continue to overweight them in the portfolios.

Interest rates also rose last week following several weeks of moving lower. As pro-growth rhetoric increases, rates may rise further and put pressure on the prices of Treasury securities. We continue to prefer credit exposure (including high yield, preferred stock and corporate debt) on the fixed-income side.

PROTECT: Risk Assist

The equity markets declined last week, but only modestly—not nearly enough to trigger a hedging position in the Risk Assist portfolios. We did see some buyers of options-based protection focused specifically on the Presidential inauguration, which was an expensive event to hedge due to the high price of put options on broad-based indices.

Additionally, portfolio-level hedging has been largely ineffective in recent months. Although there have been relatively large price movements among individual stocks and even individual sectors, there has been little volatility at the index level. For example, the S&P 500 index has seen realized annualized volatility so far this year of just 4%–compared to its historical average of 17% over the past decade.

SPEND: Real Spend

U.S. inflation data released last week showed that prices rose by 2.1% in 2016—the biggest annual increase since 2011, when inflation rose 3%. However, the 2016 gain did not seem overly concerning to the Federal Reserve Board, which sets monetary policy based in part on inflation. The president of the Federal Reserve Bank of New York noted last week that “inflation is simply not a problem” and stated that he expects inflation to remain in check because of the pace of economic growth.