Confident Consumers Help Power More Market Gains

Now that school is back is session and summer vacations are over, we anticipate increased volume (and more volatility, potentially) in the coming weeks.

Bonds were down, overall, for the week. Longer-duration issues were especially weak. The recent comments by Fed Chairman Powell suggest that he will rely more on data than on economic models or theoretical variables. If so, investors may have to come to terms with interest rates remaining lower than expected for longer than expected, given the pace of previous rate-hike cycles.

Our barbell positioning in the fixed-income portfolios performed well during the week—with preferred stocks, high-yield bonds and real estate performing well enough to overcome the weakness in long-term Treasuries.

PROTECT: Risk Assist

It was a fittingly calm week for the last week of summer, with global markets as a whole essentially flat. The Risk Assist portfolios remain fully invested.

The market’s expectations for future volatility remain subdued for equities and interest rates. Investors do anticipate continued currency market volatility, however, and we will closely monitor that area of the market.

We created our volatility forecasts for September last week. They generally came down marginally from the previous month.

SPEND: Real Spend

So far this year, equities are performing relatively well—with global stocks up 3.5% and U.S. equities gaining 9.7%. In contrast, broad-based bonds are down 1.1% year-to-date. Bonds continue to trail inflation for the year, despite a positive August for the asset class (+60 basis points). Last week on CNBC, Warren Buffett stated (once again) that stocks are considerably more attractive than bonds and that there is no question in his mind that a basket of U.S. stocks will do better than bonds over time.

Multi-asset yield securities continued to show large spreads in returns (and, therefore, substantial diversification benefits) last week. For example:

Preferred stock and REITs were up 50 basis points and 80 basis points, respectively, last week. Long-duration bonds and emerging markets debt were down more than 1% and 1.2%, respectively. For the month of August, the spreads were even wider: Emerging markets debt and global infrastructure were each down more than 2.3%, while preferred stock and long-duration bonds were each up over 1.3%.

This article was contributed by Horizon Investments, a participant in the ETF Strategist Channel.