Quarterly signed an impressive rebound in volatile markets.

Overall positive trend in the leading stock indices recorded worldwide, mainly due to optimism about the strength of the US economy and refinement gradual rate hike expectations, even if the decline in the oil price over the weekend.

The biggest inflows this week were to the QQQ with $709 million, after came FXN First Trust Energy AlphaDEX with $647 million and the Emerging Markets EEM with $476 million.

The biggest outflows was the IWM iShares Russell 2000 with $-670 million, HEDJ WisdomTree Europe Hedged Equity with $-641 million and the TLT iShares 20+ Year Treasury Bond with $-416 million.

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Macro in a nutshell

Last week we saw the wide variation of stocks. US stocks continued to rise while everywhere else the stock fell.

Quarterly summary — although the US market increased by only 2%, it still yielded more than 11% from Europe and 17% in Japan. We are not used to see these differences historically, and they are stemming from (among other things) the significant weakness of the dollar and interest rate rises expected rejection. We believe that, looking ahead to the second quarter of these disparities cannot continue. Especially gap with Europe should be reduced.

Despite the outperformance of the US, in recent weeks a lot of money went out from the US, while one of the few places funds were flowing are to emerging markets, especially in March. This is due to the rise in commodity prices, the decline in US interest rate expectations and strengthening of currencies in these markets. In view of the fact that improving economic data in most of these markets is not going to change, flow of funds and the gains there can last as long as the current environment.

The first quarter financial reports are going to be published in the United States. Expectations are low, profit growth estimate and revenues over the first quarter are not expected to be high. Accordingly, the potential can be surprisingly high.

Weakening of the dollar helped the US market. Last week, the US currency weakened from 1% to 3% across the board. Since the beginning of this year is down from 1% to 15% against all world currencies, except the pound sterling.

The weakness of the dollar is affected by the sharp drop in expectations for interest rate increases in the United States. At the moment the market is pricing one rate hike this year, and the probability to first interest rate increase was rejected to November (51%). Among other things, this is the result of the words Yellen said that although the US labor market is in good condition (and this was before publication of employment data), the weakness is the strength of the dollar (they already less harmful), low global growth and concerns from China.

US inflation expectations are rising in recent times although oil drops. Currently, 5-year expectations are 1.5%, a record of a few months. On the other hand, inflation expectations declining in Europe, even while core inflation has risen recently.

US corporate bond spreads stabilize, after receiving support in recent weeks from the continued decline in yields of government bonds. US 10 years bonds now trading at a yield of 1.77%, compared with 2.3% at the beginning of the year.

Europe as well the bond market resilience Stood out, the government and the corporate, mainly thanks to an increase in the quantitative expansion of central bank that supported the bond market more than the stock market.

We believe that in the short term markets sensitivity will remain high, mainly due to global slowdown, status and effectiveness of use in monetary tools available to central banks, a withdrawal in corporate profits and geopolitical challenges. However, the stocks are expected to stand out positively compared to investment alternatives, as the leading theme will continue to be a high level of volatility.

It is recommended to balance the investment mix by combining cyclical industries stocks, which are expected to benefit from growth, such as technology (QQQ) and Consumer Discretionary (XLY), alongside stocks from defensive industries health (XLV) and consumer staples (XLP).

In Europe (XSX6 GY) the priority is for the companies with high exposure to markets outside of Europe. Also, there is a priority to the major stock indexes over the medium and small.