A former economic colleague, and mentor, used to say: In the Bible, it says an ounce of gold will buy a fine suit of clothing. We have read the Bible, and we havent found this, although there could be some high-powered math, using talents, cubits, frankincense and myrrh that make it true.

With risk parity portfolios on the whole having outperformed traditional 60/40 allocations since the trough of the financial crisis, one must be mindful of the risks that lie ahead when determining the efficacy of such an approach.

A modest number of economic indicators were released last week, with the majority suggesting that the domestic economy remains on solid footing. Consumer sentiment and retail sales were the bright spots, after concerns about what impact the weak labor report would have on the consumer.

With expectations high, the August labor report landed with a reasonably loud thud. Economists expected recent improvements in labor markets to continue aplenty, but that proved not to be the case during the oftentimes-volatile month of August. It is never wise to read too much into a singular month, and the details of this report support that notion.

Equity markets moved modestly higher last week, with the S&P 500 closing above the 2,000 level for the first time. The S&P 500 added 80 bps on the week and now stands up 9.9% on the year following a 4% gain in August. Bonds also rallied last week, rising in tandem with European sovereigns. The rate on the 10-year Treasury fell to 2.33% by weeks end.

After a period of very strong deal activity during the first half of 2014, traders and investors were hit with arbageddon in early August. Arbageddon struck after a series of large deals fell apart, sparking concern that the pickup in activity from earlier in the year was coming to an abrupt halt. Activity since that time would suggest otherwise, and it appears that the M&A train is back on course.

Among the highlights of a busy calendar of economic data last week was the flash estimate of second quarter Eurozone GDP. The region has come under greater scrutiny in recent months amid a disinflationary trend and slowing economic data. As we discussed a few weeks ago, the high profile failure of Portuguese bank Banco Espirito Santo has also inflamed worries that Europes financial system remains vulnerable to a systemic shock.

Over the course of 2014 investors have come to notice the increase in net exposures amongst long/short equity managers. Many investors have grown somewhat wary of this development. Given the markets relatively uninterrupted run-up since late 2012, it is rational to think that these types of strategies might naturally lower their overall net exposure.

Over the weekend, it was announced that Portugals Banco Espirito Santo (BES) would be split into a good bank and bad bank. This came after the Bank of Portugal assured that BES could raise enough money from private investors to recover from the banks first-half loss of 3.58 billion.

As the so-called punchbowl provided by the Federal Reserve is slowly withdrawn, $10 billion at a time, investors are increasingly looking to corporate fundamentals to see what might drive equity markets higher in the quarters ahead. Now three weeks into second quarter earnings season, market participants have a better idea of just how the most recent cycle is shaping up.

Through the first six months of the year, hedge funds have generated a positive, albeit somewhat modest return. According to data compiled by Hedge Fund Research, the Fund Weighted Composite of hedge funds in their universe had generated a 3.2% return, compared to the S&P 500s 7.1% gain. While not terrible on a standalone basis, many investors had greater hopes for the asset class following five straight calendar years of underperformance versus the broad equity markets.

Minutes from the mid-June FOMC meeting were released last week, offering keen insight to the Federal Reserves current thinking on the economy. While the Fed suggests that the economic outlook is benign, the minutes offered guidance on the Feds exit path, which is expected to arrive by the end of the year.

After a reasonably bleak winter, labor markets are on the rebound, just in time for the Federal Reserve to decide when they should stop asset purchases. Recent figures suggest that labor markets are very near Fed targets, raising the possibility that interest rate hikes could begin sooner than expected.

For the better part of twelve months, fixed income markets have been in a rather benign state. After receiving a scare in early summer 2013 during the taper tantrum, volatility subsided, and normalcy returned to the world of fixed income. As money continues to pour into fixed income markets, there is growing concern that the investment opportunity is stretched and the time to rebalance is now.

The Federal Reserve held its regularly scheduled meeting last week, and equity markets raced to their strongest daily gain of the week after the announcement was released. There were few surprises, as the Fed chose to maintain its course, while painting a cautious economic picture.

Of the many global macroeconomic concerns of the past few years, oil has curiously fallen down the list in terms of major areas of investor focus. After recovering in the wake of the financial crisis, the commodity has generally been range bound between $100 and $120 a barrel. Newfound supply of natural gas in the United States has also eased concern about the domestic economys reliance on oil imports from the Middle East.

Global equity markets cheered the European Central Banks (ECB) decision to lower rates and provide further monetary stimulus last week, as the DJIA and S&P 500 gained 1.2% and 1.3%, respectively. As one might imagine, notable outperformance came from Europes peripheral countries with Italy (MSCI Italy) and Spain (MSCI Spain) gaining 3.4% and 2.6%, respectively.

With the backdrop of low interest rates, and sluggish revenue growth, 2014 has been the year that M&A activity finally blossomed. Companies are growing more aggressive in their acquisition tactics, leading to many high profile mergers and numerous opportunities to improve profitability.

This week is full of economic data with the Case-Shiller Home Price index coming out. Also coming out is data on durable goods orders and consumer confidence. On tap for later in the week is the second estimate of Q1 GDP, pending home sales, and personal income growth.

Long discussed pricing pressure is beginning to show up in various domestic indices, leading some to believe the Fed will pull its foot off the brakes sooner than anticipated. While inflation is stabilizing, there are few signs that it is accelerating materially, leaving plenty of room for the Fed to maneuver. It will be important to keep an eye on prices going forward, though, as any acceleration could alter the investment and economic landscape quickly.

For some time, strategists have been bullishly positioned on the U.S. Dollar, anticipating a rally that failed to materialize. The arguments were straightforward the Federal Reserve is exiting its easing cycle, Europe is facing deflationary pressure and likely to ease further, and the economy in the U.S. is on improving footing. Those expectations, while true to some extent, are not translating into gains for the Dollar, leaving many frustrated. The Dollar is suffering from a bad case of dejection and could struggle to see a sustained breakout for some time.

In a less than surprising development, U.S. non-farm payrolls grew by 288,000 in April. While some are loathe admitting the positive nature of Aprils report, there was plenty to be happy about in the latest release, suggesting the economy continues to move towards a more favorable footing. As always in the post-2008 world, caveats remain and the trend in the months ahead will provide a clearer picture into the pace of recovery.

2014 has been a year marked by shaky equity markets and relatively higher volatility than observed in 2013. With falling equity market correlations and increased stock dispersion, it was presumably a more favorable environment for hedge funds. Unfortunately, that has not been the case as most alternative investment approaches are posting less than stellar results so far this year.

A number of Americans breathed a joyful sigh of relief last week after closing the books on their 2013 income taxes. The annual rite of passage rarely elicits excitement when addressed in conversation, and this year was unlikely to be any different. But, the latest tax data suggests the economy is gaining speed, news bound to make even the most hardened filers crack a smile.

With a dissipation of economic stress in Europe, and a general strengthening of economic conditions in the U.S., equity market volatility has plunged to new lows. Some would argue that market intervention by central banks is acting as an unnatural dampener to market volatility, raising the question as to whether a gradual removal of those policies will cause volatility to resurface. So far, the answer is up for debate, but current positioning suggests many investors are becoming complacent and will be caught off sides if such a scenario emerges.

With an unusually harsh winter finally ending, economists were excited to see if labor markets would rebound in March. By many accounts, they were left wanting for more, but the underlying theme in the March report was consistent, steady job growth.

As the first quarter draws to a close, equity markets appear poised to finish in positive territory despite a somewhat tumultuous news environment. As noted by Bloomberg, save for a sharply negative Monday period, the S&P 500 will close out a fifth consecutive quarter in positive territory for the first time since 2007.

After bursting onto the scene earlier this year, Janet Yellen held her first official FOMC meeting last week. Rather than upset the apple cart, she held a largely status quo stance, but several comments raised more than a few questions.

Long dormant after the financial crisis, foreign exchange markets are beginning to heat up, offering ample trading opportunity for asset managers. The U.S. dollar was widely viewed as being the best long trading opportunity for 2014, but so far, that has not played out, with activity in the Euro, Chinese Yuan, and other currencies impeding dollar strength.

The $19 billion acquisition of WhatsApp by Facebook in late February put an exclamation point on several high profile takeovers in the technology space in recent months. Sizeable deals such as Google?s $3 billion acquisition of Nest and Facebook?s $3 billion offer for SnapChat have fueled the idea that an indiscriminate buying spree in the technology space a la 1999 could set up financial markets for another valuation bubble.

After a long period of deleveraging, there are appearances that consumers are entering a stage of releveraging. The devil is always in the details, though, and this releveraging cycle is likely to play out vastly different than those of previous expansions.

The European sovereign debt crisis has all but faded from investors? minds since ECB President Mario Draghi?s famous pronouncement on July 26, 2012 that he would do ?whatever it takes? to save the monetary union. Since that time, equity markets in Europe rallied sharply as accumulated risk aversion fell away.

Earnings season is nearing its finale, and the latest results show plenty of reason to be bullish, but the longer-term trend remains an outstanding question for markets.

Stocks were modestly positive last week following three straight weeks of negative performance. Markets crawled back following an ugly Monday in which the S&P 500 suffered its worst loss in more than seven months. For the week, the S&P rose 0.9% while the Dow Jones Industrial Average added 0.7%.

This Friday investors receive the first official labor market report of 2014. Following a highly disappointing jobs figure in December, many market participants hope to see a rebound - particularly one that will help justify the Feds decision last week to continue tapering its asset purchases.

Active managers faced a difficult road in recent years, leading to many questions about the efficacy of active versus passive investment management. There are signs that the tide is once again changing in favor of active managers and the road ahead could offer happier times.

The environment following the global financial crisis has been a challenging one for asset allocators, as long held relationships shifted and traditional idioms were turned on their head. As we detailed last week in "The Diversification Obituary," investors have seen little work in their portfolios other than US stocks, while supposed diversifiers have offered little more than muted beta and unusually high correlations.

According to some major media outlets, 2013 was the year diversification died. With the S&P 500 racing to a more than 30% gain (the largest since the late 90s), it seemed as though no other asset class truly mattered last year. While it is true domestic equities had a banner year, one-asset class portfolios will never be robust, and there is reason to believe 2013 is a prime example of why diversification is incredibly important.

In the wake of the financial crisis of 2008, investors piled into alternative investments en masse to help insulate their portfolios from another dramatic market decline. For those who had not yet bought into the idea of improving portfolio risk-adjusted returns, the 50% drawdown in the S&P 500 provided all the convincing needed.

Nearing the final two weeks of the year, it is customary to look forward to the trends and events that will shape the coming year. A theme that may come to the fore in 2014 revolves around central bankers, specifically the diverging fates in various economies of the world.

With another month down in 2013, last week came time to dissect the latest report on employment. If the market reaction was indicative, the highly anticipated November labor report did not disappoint, sending stocks up more than 1% on Friday.

The past five years have seen a dramatic influx of investor capital into corporate credit markets. As investors jumped into the market, there is growing concern that credit markets are nearing stretched valuations. Those concerns are likely premature, particularly with central bank intervention in place.

Amid all the Fed talk dominating airwaves and headlines, a few key developments occurred overseas last week that could shape financial markets significantly in the quarters ahead.

The unofficial start to the holiday shopping season kicks off in a few short days. Economic uncertainty abounds, raising fears that consumers will pull back from spending, but some positive developments suggest consumers will be just fine.

A mixture of surprising economic data and changing central bank policy led to sharp moves in currency markets last week. This came after several gyrations in FX markets earlier this year. Looking forward, volatility is likely to remain, but many signs point towards a strengthening U.S. dollar.

For several years now, a common storyline on China was the immense overcapacity in the countrys housing market. A mixture of easy credit policies and officials explicit economic growth plans based on capital investment yielded construction on a massive scale across the countryside. So-called ghost towns emerged as the pace of building and the migration of rural citizens into these cities fell out of sync.

Following an extended delay, investors were disappointed (sort of) to learn that the September payroll report was another dud. The headline figure was below expectations, but investors were largely comforted by knowing this likely extended QE3 further into the future.

Lost in all the discussion about Washington is the fact earnings season is in full swing.It is shaping up to be another interesting reporting season, on account of volatility in the markets and economy.So far, companies are beating expectations, but the broader trend is lower.

Treasury Secretary Jack Lew has publicly declared October 17 this Thursday as the date when the US government would no longer be able to pay its bills, should Congress not reach a budget resolution.A once unthinkable outcome is becoming all too close to reality due to brinksmanship in Washington.For the second time in two years, investors have had to contemplate just how such a situation would shake out for financial markets.

With all the focus on affairs in the US, China and developing nations, Europe has largely been given a free pass in recent months. The lack of attention gave Europe the opportunity to fix some of its troubles, but challenges remain and are likely to surface in the weeks ahead.