July 2008 was one of the more challenging months for strategic-minded investors in recent memory. There was plenty of red ink on last month’s tally, as our table below shows, although the headwinds were even stronger than losses alone suggest.
Let’s begin by noting that the big stumble last month came in commodities. The DJ-AIG Commodity Index, for instance, dropped by an astonishing 11.9% in July. That’s the biggest month setback for the benchmark, as far as we can tell, based on records we can dig up going back to 1991. (Our ETF proxy in our table fared even worse, slipping more than 12% last month.)
Foreign stocks took it on the chin last month, too, although the pain was modest by comparison with commodities.
In the winner’s column: REITs, which rebounded in July with a robust gain. Overall, we can say that REITs popped and commodities flopped.
The steep tumble in commodities was due mostly to oil’s sharp drop last month. Since most commodities indices are heavily weighted in oil and energy, it’s no surprise to learn that commodity benchmarks overall suffered in July. Unexpected? Hardly. Commodities generally have been rallying for years and the corrections along the way, at least on a monthly basis, have been relatively rare and quite mild for the most part. Taking some of the froth out of prices, particularly in oil, is long overdue and it wouldn’t surprise us to see more of the same in the months ahead. Commodities generally are a volatile asset class, and if you factor that in with the record prices for many raw materials of late, it’s no surprise to see downside volatility has finally come a-courtin’.