Fixed Income Out of Favor, Risk Assets Buoyant

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 |  Includes: AGG, BND, BWX, CRED, DBA, DBC, EEM, EFA, EMB, FRN, GLD, GSG, HYG, ICF, IEF, IWM, IYR, JNK, MBB, MUB, PCY, PHB, RWX, SHV, SPY, TLT, VEU, VNQ, VTI, VWO
by: MyPlanIQ

Stock markets recovered strongly last week. S&P 500 index rose above 1300 and closed at two-year high. The major developments in the week include: ISM manufacturing index for January 2011 rose to 60.8 and unemployment rate dropped to 9%.

Among risk assets, commodities (NYSEARCA:DBC), U.S. equities (NYSEARCA:VTI), (NYSEARCA:SPY) and U.S. and international REITs (NYSEARCA:IYR), (NYSEARCA:RWX) continued to be placed at top spots. Emerging market equities (NYSEARCA:VWO), (NYSEARCA:EEM) rose less and trailed U.S. equities. In the fixed income side, long term treasury bonds dropped most, TLT closed below 90 for the first time in the last ten months. Other 'safe' bonds like investment grade bonds (CFT), municipal bonds (NYSEARCA:MUB) and even short term bonds (NYSEARCA:SHV) closed lower. Only the high yield (NYSEARCA:JNK), (NYSEARCA:HYG) and international bonds (NYSEARCA:BWX) in the riskiest spectrum closed higher. Clearly, fixed income is out of favor at the moment. For more detailed performance, refer here.

Assets Class Symbols 02/04
Trend
Score
01/28
Trend
Score
Direction
Commodities DBC 13.51% 12.1% ^
US Stocks VTI 12.28% 10.47% ^
US Equity REITs VNQ 10.81% 10.96% v
International REITs RWX 9.54% 8.32% ^
International Developed Stks EFA 8.6% 5.98% ^
Emerging Market Stks VWO 7.75% 5.61% ^
Gold GLD 6.73% 5.47% ^
US High Yield Bonds JNK 5.55% 4.06% ^
Frontier Market Stks FRN 2.8% 1.53% ^
International Treasury Bonds BWX 1.77% 1.25% ^
Treasury Bills SHV 0.0% 0.02% v
Emerging Mkt Bonds PCY -0.05% 0.12% v
US Credit Bonds CFT -0.75% 0.92% v
Total US Bonds BND -1.35% -0.07% v
Mortgage Back Bonds MBB -2.57% -1.09% v
Intermediate Treasuries IEF -2.78% 0.26% v
Municipal Bonds MUB -3.11% -1.98% v
Click to enlarge

The trend score is defined as the average of 1,4,13,26 and 52 week total returns (including dividend reinvested).

Stocks briefly cleared the over-bought state and now again in an over valued and over bought territory. The unemployment situation, though improved, is still not promising. Rational investors should monitor the situation closely. Remember what Warren Buffett's advice: "Be fearful when others are greedy and greedy when others are fearful."

Disclosure: I am long DBC, IYR.