Bonds rallied on the week as stocks sold off. We adjusted the income portfolios by reducing investment-grade corporate debt and adding a barbell of real estate and longer-term Treasurys. Together, the new holdings continue to provide the equity-income exposure that we prefer while helping to buffer volatility when equity markets get choppy.
PROTECT: Risk Assist
Suffering emerging markets once again weighed on global equity markets last week, due largely to falling currencies in these markets that hurt their growth prospects. The Risk Assist portfolios have very limited exposure to this asset class.
Expected stock market volatility rose during the week due to concerns about emerging markets and the potential for a trade war between the U.S. and various countries and regions. That said, volatility remains below its long-term historical average.
As the second quarter of 2018 ended, we maintained the portfolios’ positioning.
SPEND: Real Spend
Global stocks ended the week down more than 1%, while bond prices rose slightly. Last Friday marked the end of the second quarter of 2018, which saw global stocks and bonds post similar returns.
The Federal Reserve Board’s preferred measure of inflation—the PCE index—showed that core inflation (which strips out the food and energy sectors) in May rose by 2% year-over-year, which was slightly higher than expectations. This was the first time that the core rate hit 2%—which is the Fed’s long-run target level for inflation—since 2012. However, the Fed has stated recently that it is comfortable with inflation running at a slightly higher-than-target rate for now.
Yield-focused investors had a mild week. Master limited partnerships, high-yield bonds and emerging markets debt were down. But longer-duration bonds posted gains as interest rates fell slightly. For the quarter, yield-focused investment such as MLPs and REITs performed well.