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Equity markets slipped last week as the debate raged about possible asset bubbles and the Federal Reserve's role in stopping them. Evidence is piling up that some assets are overheated, as the Morningstar Emerging Market Index is up 79% so far this year.

Less risky assets, such as fixed income, posted positive results while riskier assets, such as equity, fell. Concerns that soaring markets may reverse have also spurred the Federal Reserve to increase scrutiny of large US banks.

The Morningstar US Market Index fell 0.3% for the week, but is up 5.5% for the month. With risk appetites contracting, large firms gained over their smaller counterparts. The Morningstar Large Cap Index eked out a gain of 0.1% while the Morningstar Small Cap Index fell 0.8%. Likewise, growth stocks were a casualty of lower-risk budgets. The Morningstar US Value Index rose 0.4% and the Morningstar US Growth Index fell 0.7%.

Health care is traditionally more defensive because of its more stable cash flows, and the sector was the top performer for the week. Technology shares stumbled, led by Apple and Intel, down 2.2% and 2.9% respectively.

All of the major fixed-income categories were in positive territory for the week. The Morningstar Core Bond Index advanced 0.5%, driving its yield down to 2.7%. The Morningstar US Government Bond Index gained 0.6%, while the Morningstar Corporate Bond Index increased 0.7%. Corporate bonds have now advanced 17.6% for the year.

Unlike most of the year when commodities rose and fell with equities, the Morningstar Long-Only Commodity Index rose 2.6% last week, despite sagging equity markets and concerns about the economy. Demand for metals has been strong, and the Morningstar Metals Commodity Index led all sectors, up 4.4%. The Morningstar Long/Short Index gained 0.7%, with 13 of the 19 commodities in the long position.

Travis Pascavis, CFA is a Morningstar stock analyst.

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