The Dow Jones Industrial Average hit an all-time high of 21,000 last week on the heels of the President’s first speech to Congress. Notably, newly released U.S. economic data continued to exceed expectations:
– Durable goods orders in January rose 1.8%.
– The ISM Manufacturing Index for January came in at 57.5—its highest reading in more than two years.
Meanwhile, emerging markets continued to improve. China reported February Manufacturing PMI of 51.6, which beat estimates, while India reported better-than-expected fourth quarter GDP growth of 7%—and projected growth of 7.1% for the coming year.
GAIN: Active Asset Allocation
Equity prices rose last week, as investors were encouraged by pro-growth policy statements made by the President. Domestic stocks easily outpaced international markets, with large-cap U.S. shares leading the way. The healthcare, financials and energy sectors were particularly strong performers.
Bond yields also rose in the wake of the White House’s pro-growth statements, pushing down bond prices overall. The interest rate on the 10-year U.S. Treasury note jumped by more than 7%. High-yield bonds held up relatively well, however, and the spread between high-yield bonds and Treasuries is helping our fixed-income allocations. We continue to be bullish on corporate bonds in general.
PROTECT: Risk Assist
The equity market last week finally broke its streak of 45 days with no 1%-plus moves up or down, with the S&P 500 surging 1.4% on Wednesday following the President’s speech to Congress.
Risk Assist portfolios were—and continue to be—positioned to capture such gains (in contrast to certain other hedging techniques that are always “on” regardless of the market environment).
SPEND: Real Spend
Headline inflation in the euro area rose to its highest level since January 2013, up 2% on a year-over-year basis. The increase, which was in line with expectations, was due largely to rising oil prices. In addition, euro-area unemployment remained at its lowest levels since 2009, which could potentially lead to debates on a policy that affects both rates and the euro.
Meanwhile, core inflation in the U.S. rose by 1.7%—below the Fed’s 2% target.
U.S. stocks continue to outpace fixed-income markets. That said, rising bond yields last week benefitted Real Spend portfolios. Within the portfolios, we remain overweight corporate bonds and high-yield securities, both of which have outpaced the broad fixed-income market recently and year-to-date.