By Jason Teed Equities were up in the second quarter despite some market choppiness in May. The NASDAQ 100 Index was the leader for the quarter with an 11.2% gain. The Russell 2000 small-capitalization index was the domestic laggard, up 4.0%. Emerging markets were the weakest performers, gaining 3.8%. Growth stocks outperformed Value stocks for the quarter. Developed international markets also made small gains as COVID-related concerns continued to depress returns in those regions. This distribution of returns indicates a risk-on economic environment domestically as the U.S. began to move beyond the COVID pandemic and the rest of the world lagged both economically and in vaccinations. Offensive sectors mostly outperformed. Information Technology led performance, gaining about 11.4%. Energy also performed well, up about 10.9%. Consumer Staples lagged for the second straight quarter, up only 3.1%. Utilities performed the worst for the quarter, falling 0.5%. While corporate earnings have been rebounding off 2020 lows, valuations have continued to increase beyond recently elevated levels. For example, the Shiller PE ratio (a cyclically adjusted earnings ratio used to predict forward returns for the markets) is implying negative forward returns. This highlights the potential benefit of active management over the next few years, which will be able to invest in sectors, styles, and assets as opportunities arise. Safe-haven assets were also up for the quarter. Gold rose about 3.5%, while long-term Treasurys gained about 7.0%. Both appeared to rise due to falling interest rates as the market considered whether the current recovery is sustainable. Falling rates make gold more attractive relative to income-generating assets, and bond prices rise as interest rates fall. The yield curve began to flatten for the first time in several quarters. The 10-year rate, which is used across multiple sectors of the economy, was near levels not seen since February. This indicates that the market is becoming cautious about the recent recovery. The curve has also moved downward in general. The recent strong performance from equities led to quarterly gains in about 92% of our strategies. Our top performers were mostly aggressive trend-following equity strategies that can use leverage and other aggressive strategies with access to the equity markets. The quarter was challenging for fixed-income strategies. Long-term Treasurys were up for the quarter as the yield curve flattened, yet bonds, in general, moved little last quarter. Many of our conservative strategies had little to take advantage of in the market, resulting in lower returns for the quarter. About 95% of OnTarget Monitors for the quarter were “in the yellow” or better, with 91% “OnTarget” (“in the green”) or better (“in the blue”).