The markets have finished up over the past week with the S&P 500 up 0.58%, the Dow Jones up 0.81%, international stocks (EAFE) up 0.31% and US Aggregate Bonds down 0.28%
Top asset classes for the past month include Brazil (12.27%) and Biotech (8.75%), and German stocks (8.41%).
Bottom asset classes for the past month include Oil (-6.52%), Long-Term Treasuries (-3.56%), and Utilities (-3.05%)
While, Oil was still the biggest loser over the past month, it did surge by 7.59% over the past week.
Economic Strength Index (ESI)
An ESI value of 45% indicates a:
The ESI’s current value indicates that the US economy is no longer in prime territory to support growth. While job numbers remain very strong and unemployment remains low several aspects of the US economy have begun to show their age in this market.
Year over year growth rates amongst the indicators underlying the ESI are in the 21st percentile (0 to 100 scale). This, combined with the current value of the ESI imply that we may see more softening of economic numbers to come.
In the past week we’ve seen some softness in the defensive sectors of the US markets, which investors had piled into earlier in the year due to their stability during recent fluctuations.
Bonds have also seen a small pullback over the past week that has continued the small pullback after their surge due to the Brexit vote.
Meanwhile there has been significant rallies in several emerging markets such as Brazil and Russia.
It’s easy to become over-allocated to stocks when markets are making new highs and the volatility of the last year is seemingly in the rear-view mirror. However, in times like these (when markets are reaching new highs) risk is at its greatest, so it’s important to maintain a balanced outlook in your portfolio.