Earlier today we showed a remarkable statistic when looking at the performance of all asset classes in the first ten months of 2018: according to Deutsche Bank, as of the end of October, 89% of assets that the German lender collects data on for its annual long-term study, have had a negative total return year to date in dollar terms. This was the highest percentage on record based on data back to 1901, eclipsing the 84% hit in 1920.
Of course, the bulk of this YTD underperformance took place in the month of October. So how did various assets classes perform in the just concluded month?
Well, as Deutsche Bank's Craig Nicol writes, in the context of the longest bull market in history and the second longest (and counting) expansion of the US economy on record, October 2018 may well end up being one of the most memorable – or unforgettable depending on your take - of the 112 months during this cycle in markets, at least for equities.
Indeed at a headline level, we saw the worst monthly performance in total return terms for the NASDAQ since November 2008, S&P 500 since September 2011, MSCI EM Equities since August 2015, STOXX 600 and Hang Seng since January 2016, and Nikkei since June 2016. That's despite the rally into month end which at least helped to limit some of the damage.
In fact traders would be hard placed to find many assets which posted a positive total return last month: by the end of October, 34 out of the 38 assets in Deutsche Bank's sample had delivered a negative total return in local currency terms, while 36 did so in dollar adjusted terms. And, as noted above, the performance for assets in October has also resulted in the vast majority dipping into negative returns for the full year to date too.
The obvious place to start is with equities. Of those listed above it was the Hang Seng (-10.0%) which ended the month down double digits, with the NASDAQ (-9.2%), Nikkei (-9.1%), EM Equities (-8.7%), FTSE MIB (-8.0%), European Banks (-7.9%), Shanghai Comp (-7.7%) and S&P 500 (-6.8%) not far behind - the latter boosted by a rally into month end. At a sector level for the S&P only the defensive utilities (+2.0%) and consumer staples (+2.3%) rose. Meanwhile, its worth noting that for European markets a 2.5% decline for the euro actually helped local currency returns. On a dollar adjusted basis the STOXX 600 and DAX were actually down -7.9% and -8.9% respectively and therefore underperforming the S&P 500. The one bright spot for equities last month was in Brazil where the BOVESPA rallied +10.2% and +19.9% in local currency and dollar adjusted terms respectively following the perceived market friendly election result.
Credit markets generally held in a bit better than equities on a relative basis but returns were still by and large negative. In the US we saw HY post a -0.7% return while IG Non-Fin returned -1.6%. In Europe HY returned -1.2% however dollar adjusted returns were -3.6% while IG Non-Fin was -0.2% and -2.7% respectively. It was a similar story for underlying bond markets also. Treasuries (-0.5%) were slightly weaker which was impressive given the risk off while Bunds (+0.6%) delivered marginally positive returns however again the latter did see a return of -1.9% in dollar adjusted terms. BTPs returned -1.4% in local currency terms and -3.9% in dollar terms following another month of whipsawing yields around the budget headlines. Finally in commodity markets it was only Gold (+1.9%) which closed higher, with Copper (-5.2%) and more notably Brent (-8.8%) and WTI (-10.8%) down.
As for where that leaves us year to date, well at the end of October, of the 38 assets in the bank's sample, 29 and 31 assets in local currency and dollar adjusted terms respectively, finished with negative total returns. That compares to 24 and 30 at the end of September.
As Deutsche Bank notes, it’s amazing to think that at this stage last year, there were only 3 assets (Bunds, Commodity Index and Russian Equities) in local currency terms with a negative total return and one asset (Commodity Index) negative in dollar adjusted terms. Of the DM equity markets now, only the NASDAQ (+6.7%) and to a lesser extent the S&P 500 (+3.0%) are holding onto positive total returns. The STOXX 600 is now down -4.2% (and -9.7% in dollar terms), DAX -11.4% (and -16.5% in dollar terms), Hang Seng -13.7% (-14.0% in dollar terms) and Shanghai Comp -19.4% (-24.7% in dollar terms). Boosted by October’s rally, the BOVESPA is now up +14.4% for the year in contrast.
Broader EM equities have however fallen -15.5%. In bonds, Treasuries and Bunds have returned -2.3% and +1.4% respectively (the latter however down -4.4% in dollar terms) while BTPs now stand at -5.8% and -11.2% in local and dollar terms for the year. Meanwhile credit indices are -0.6% to -2.3% in Europe (but as much as -8.0% in dollar terms) and +2.1% to -4.1% in the US with HY the standout performer still over 2018. Finally commodity markets continue to be bookended by Brent (+18.5%) and Copper (-19.4%) with the broader commodity index (-1.5%) closer to flat.