To think it was just over two weeks ago, when the Russell was in a bear market, and the S&P was on the verge of not only closing red for the year, but entering its first correction in years. Then James Bullard soothed all the selling algos that in a worse case scenario the Fed will rush to bail all the BTFDers out yet again, and the rest is history.
What ensued was an October, which as DB's Jim Reid notes, proved to a wild ride for markets with mixed performances across various asset classes. Indeed on volatility alone October actually saw the widest intra-month range for the S&P 500 since October 2011. The S&P 500 finished the month at an all-time new high of 2018 after having dipped to an intraday low of 1821 around mid-month giving rise to high-low range of almost 198pts. Whilst Stoxx600 had a negative performance in August the intra-month range of 41pts was the widest since August 2011. The ‘flash rally’ in Treasuries around mid-month also produced the most volatile month for the asset class since the taper-tantrum last year. The 10yr note experienced a intra-month range of 64bps which was just shy of the 67bps range we saw in June 2013.
Some other observations:
Volatility aside October was pretty much a month of two halves with the turn arriving at around the mid-way mark. Generally both equities and fixed income did well with the latter retracing some of the gains as the bid for safety assets moderated. Soft commodities (Corn and Wheat) aside, equities took up half of the top 10 best performers in October. The Russian MICEX, the Hang Seng, the S&P 500, Shanghai Composite and the Nikkei were up +5.7%, +4.8%, +2.4%, +2.4% and +1.5%, respectively on a total return basis. The Hang Seng reversed most of the protest-led losses in September whilst the Nikkei received a treat on the very last day of October following the BoJ’s surprise move to add more stimulus. On a total return basis US HY credit (+1.5%) was one of the better performers in October although it did also benefit from a solid performance in rates. Treasuries were up as much as +2.3% in mid-October before giving back some of those gains to close 1.1% up on the month. Staying in fixed income core rates markets were also stronger in October with Bunds and Gilts adding +0.6% and +1.4%, respectively. The European peripheral complex was weaker though. Italian bonds and equities were down -0.4% and -5.3% in October. Spanish and Portuguese equity markets were also down -2.8% and -8.3%, respectively. But the worst performer in October goes to Greek equities with the Athex index losing nearly 14% after having lost nearly 9% in September. In fact Greek equities are now the worst performing YTD asset class in our sample, now down 21% in local currency terms and 28% in USD terms. Elsewhere the EM complex also had a good October with the MSCI EM equities index and EM bonds up 1.2% and 1.6% respectively.
Before we wrap up, October was also the month where Oil officially dipped into bear market territory after a monthly decline of 12% in WTI and 10% in Brent. The Dollar strength probably didn’t help although in reality the decline was also driven by concerns around aggregate demand. The Dollar gained 1.1% against major currency pairs to mark its fourth consecutive monthly gain whilst the JPY has depreciated to a 2007 low. Our usual performance table and charts included in the PDF. It has all the YTD performance charts and data included.
And here are the charts showing the best and worst performing assets for October...
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and for YTD, both in local currency....
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and in USD.
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Note that while some of the best performing YTD assets in local currencies, such as BTPs and Spanish bonds roared in EUR terms, they are increasingly subdued when redenominated in USD, suggesting that the S&P's gain is nothing more than a voluntary submission to being beggared by its neighbors. It remains to be seen just how much longer the US can sustain being the world's whipping currency, and surging day after day.