Our allocations remained unchanged last week, and we maintained a maximum equity exposure with an overweight to U.S. stocks and preference for growth stocks. Small-cap stocks are at a benchmark weighting.

Meanwhile, bonds were flat for the week. The yield curve continued to flatten, with the yield spread between the 2-year Treasury and the 10-year Treasury at 10-year lows. Although higher rates are eventually negative for the economy and stocks, it takes a few years for higher rates to suppress markets. Therefore, we believe it is too early to set off alarm bells—especially since the Federal Reserve Board is not likely to be extremely aggressive in raising interest rates.

Credit markets firmed up, with positive results from both investment-grade and high-yield debt. Other income-focused asset classes (including preferred stock and real estate) were soft, however.

PROTECT: Risk Assist

Volatility remained at relatively low levels last week, with the CBOE Volatility Index (or VIX) below 14. This suggests that the financial markets are becoming accustomed to a sustained high level of trade/tariff tensions, and may be more likely to rally on news of “renewed talks” between trade partners than fall on headlines of “additional tariffs” at this point.

The Risk Assist continue to maintain their current allocations; although, we have decreased our volatility forecast for this month.

SPEND: Real Spend

Several key gauges of inflation were released last week.

  • Most notably, the consumer price index for June grew by 2.9% on a year-over-year basis—meeting economists’ expectations. (The month-over-month growth was slightly lower than anticipated.)
  • Core CPI, which strips out the volatile food and energy sectors, came in at 2.3% year-over-year. This is roughly consistent with the Fed’s preferred inflation metric, the PCE index, which was up 2.0% at its latest reading.
  • The producer price index, which is often seen as a leading inflation indicator, rose slightly more than expected in June—advancing 3.4% year-over-year.

Global equities outperformed the broad-based bond market last week by nearly 2%. Although international stocks struggled during the second quarter, global stocks are still outpacing bonds by more than 3% year-to-date.

Yield-focused investments had a mixed week. High-yield bonds and emerging markets debt were up, preferred stock was flat, and master limited partnerships fell sharply along with oil prices. So far this year, preferred stock has been the bright spot in the yield space—up around 2.5%.

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