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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 (DBC), U.S. equities (VTI), (SPY) and U.S. and international REITs (IYR), (RWX) continued to be placed at top spots. Emerging market equities (VWO), (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 (MUB) and even short term bonds (SHV) closed lower. Only the high yield (JNK), (HYG) and international bonds (BWX) in the riskiest spectrum closed higher. Clearly, fixed income is out of favor at the moment. For more detailed performance, refer here.

Assets ClassSymbols02/04
Trend
Score
01/28
Trend
Score
Direction
CommoditiesDBC13.51%12.1%^
US StocksVTI12.28%10.47%^
US Equity REITsVNQ10.81%10.96%v
International REITsRWX9.54%8.32%^
International Developed StksEFA8.6%5.98%^
Emerging Market StksVWO7.75%5.61%^
GoldGLD6.73%5.47%^
US High Yield BondsJNK5.55%4.06%^
Frontier Market StksFRN2.8%1.53%^
International Treasury BondsBWX1.77%1.25%^
Treasury BillsSHV0.0%0.02%v
Emerging Mkt BondsPCY-0.05%0.12%v
US Credit BondsCFT-0.75%0.92%v
Total US BondsBND-1.35%-0.07%v
Mortgage Back BondsMBB-2.57%-1.09%v
Intermediate TreasuriesIEF-2.78%0.26%v
Municipal BondsMUB-3.11%-1.98%v

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.

Source: Fixed Income Out of Favor, Risk Assets Buoyant