By Horizon Investments

Unemployment claims in the U.S. fell slightly in early July, but were higher than expected, while retail sales in June were lower than anticipated. Overseas, Japan reported a decline in machine orders—disappointing investors, who had expected an increase.

Major U.S. equity indices posted gains for the week. Investors were encouraged by Federal Reserve Board Chairwoman Janet Yellen’s statements to Congress, emphasizing the Fed’s intention to raise short-term interest rates gradually. Technology stocks—which had been battered recently—were the week’s top performers, with shares of semiconductor manufacturers leading the charge on rising demand for computer chips. Meanwhile, interest-rate-sensitive sectors such as financials and utilities underperformed as interest rates crept higher.

Internationally, emerging markets stocks were the best performers: Brazil, China and Mexico all gained on global economic optimism. In contrast, Japanese equities underperformed due to tepid economic growth and political uncertainty.

In the fixed-income markets, government bond yields rose on investors’ belief that central banks would continue to pull back from their accommodative monetary policies. Emerging markets debt and equity-focused fixed-income securities such as convertibles and high-yield bonds were the top performers. Long-duration bonds suffered last week as interest rates rose.

GAIN: Active Asset Allocation

Global stocks benefited last week as markets took Fed Chairwoman Yellen’s comments about the gradual pace of future Fed rate hikes positively. In particular, emerging markets stocks and growth shares rebounded nicely after a few soft weeks.