With the current available data, the probability of a rate hike in September is low. The market is currently pricing a 26% chance of a hike in September, 32% in November and 52% in December.   

The Tactical Income strategy allocation is well positioned for a possible rate hike. The portfolio has shorter duration and a higher yield compared to its benchmark of U.S. Bond Aggregate Index. We have also recently reduced our exposure to long-term treasuries position and increased our position in emerging market bonds to manage duration and yield risk. 

Exposure to high yield bonds remains one of the top holdings of the portfolio with an 11% weighting.  High yield bonds are generally less sensitive to interest rate hikes.  At the same time, we believe that U.S. economy is fundamentally strong, thus the default rate should stay low for high yield bonds.  The strategy also has decent exposure (approximately 25%) to alternative investment and dividend equity ETFs, which typically are also less sensitive to rate hikes and even perform well in interest rate rising environments.

Both domestic and international demand for investment grade corporate bonds is high.    Given the low and negative yield environment in Europe and Japan, the U.S. corporate bond market is one of the few supplies of high quality yield left in the current market. The relatively high yield of CLY (4%) can be helpful in boosting income for a retirement portfolio.

EMB was displaying a positive outlook on three of the four major categories for which we evaluate ETFs; valuation, macro and technical.  The Emerging market bonds seemed to deliver relatively strong performance after the Brexit vote.  Since then, we concluded the outlook of emerging market has improved with a stabilizing Chinese economy and commodity prices.  

Valuation, macroeconomic and sentiment signals have recently improved for Eurozone equities. The economic surprise index has shown improvement in Eurozone countries while July PMI, though down 0.8 points compared with June data, displayed a relatively solid expansion level of 52. 

The estimate from economists is that GDP will be about a quarter point lower a year from now and about a half a percent five years from now in the Eurozone after the Brexit completion.  However, we believe that a lot of the downside risk has already been reflected in the equity market price. We expect that the European Central Bank will deploy all policy instruments, if necessary, to boost the economy, including expanding asset purchases, injecting additional liquidity support, or lowering interest rates. 

As mentioned above, emerging market equities delivered relatively strong performance after Brexit. The outlook of emerging market has improved with a stabilizing Chinese economy and commodity prices.                                                                                                                                                                                                                                   

We have recently cut back our IVV holdings in our portfolios.  At the same time, we still believe that U.S economy is fundamental strong with moderate job growth, robust consumer spending and strong housing market, thus we hold a decent allocation of U.S. equities in the strategies.

With wage growth picking up as the job market tightens, consumer spending has been strong and a major contributing factor for the strong economy.  Real consumer spending grew by almost 3% during the first half of the year, on top of even stronger growth last year. Vehicle sales are hovering near record highs and home sales are as strong as they have been since the housing bubble burst.

PMI data shows that U.S. manufacturing is expanding again.  Inventories are now shrinking, and producers are quickly getting their inventories back in line.