Positions in European equities have dragged on the portfolios, but we should have better insight this week into the direction of European interest rates and the potential for a stronger euro. If the European Central Bank begins pulling back on its economic stimulus program, it will be a sign that European economies are progressing nicely.

Bond prices were generally down for the week, as the yield on the 10-year U.S. Treasury note rose back toward the psychologically important 3% mark. The move higher in rates hurt our longer duration corporate bond allocations, but was generally beneficial for shorter duration fixed-income securities and corporate credit positions.

PROTECT: Risk Assist

Emerging markets saw significant volatility last week, particularly in Latin America as currency issues began to percolate there. This caused volatility expectations across other equity markets to rise throughout the week as investors worried about potential ripple effects.

This week will see several events that could potentially move markets—including a summit between the U.S. and North Korea, and monetary policy meetings held by both the Federal Reserve Board and the European Central Bank. As always, we monitor the portfolios daily and will update our volatility forecasts mid-month if appropriate.

SPEND: Real Spend

Global stocks had a strong week, up more than 1%. Bonds were down slightly (-0.3%) as the yield on the 10-year U.S. Treasury note rose about two basis points to end the week around 2.95%.

Year-to-date, global stocks remain the outperformer, while bonds are down. Additionally, the return spread between global equities and bonds over the past year is nearly 15%—with bonds down 1% during that period (and down 3% in real, inflation-adjusted terms). We continue to caution against the overuse of fixed-income in investment portfolios, as rising rates will create a headwind for bonds.

This week we should see more clarity on the future direction of rates, as well as new inflation data. Week-over-week market expectations for inflation were fairly flat, with longer-term (five-year) expectations around 2.4%.

Yield-focused investors saw positive signs overall, with preferred stocks leading the way in the fixed-income category. High-yield bonds followed. High-yield equity investments also fared well: U.S. REITs and master limited partnerships were up for the week, while long-duration bonds were down.

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