Financial noise can be disorienting. This week was no exception. Between the Fed’s FOMC statement and the various economic reports, there’s been enough play in the numbers to see whatever you want to see.
But while the economy remains a gray area, Mr. Market continues to speak, as he always does, with numerical precision. Economists may hedge their forecasts, but traders must put a definite number on their sentiment, either in the affirmative or negative. Market prices, in short, prevail. They may be wrong, right or something in between, but for those of us without a crystal ball, we can’t afford to dismiss the trend in pricing assets.
With that in mind, here’s a quick look at how the latest market profile stacks up across the broad asset classes. What’s striking these days is the fact that the red ink is starting to pile up when measured by recent history. As our table below shows, the biggest loser over the past month has been REITs, which shed 5%. Even so, REITs are still up by that amount and more for the year. The asset class has been second to none in resiliency in the 21st century. No one knows if REITs can weather the storm one more time, but it’s clear that if economic and real estate risks linger, the group may be vulnerable.

Another group to watch is emerging markets, which have tumbled by nearly 2% in the past month. Like REITs, emerging markets returns are still firmly in the black on a year-to-date basis. But as a high-risk corner of equities, this would not be a great time to go to sleep in monitoring the group.
In fact, everything save U.S. bonds, TIPS and cash has fallen over the past month. The fact that the selling has been across-the-board in recent weeks is a sign, at least to us, that returns won’t come as easily, if at all, going forward. Ours is a new era of rising risks and potentially lower returns for the foreseeable future compared with the last few years. You wouldn’t necessarily know that by looking at last year’s returns, which we list in the above table. But investors should remain vigilant to the fact that recent history can distort perceptions about what’s coming.
Yes, diversification across asset classes is still your only friend in the long run. Then again, it’s no guarantee. The inherent risk, by our reckoning, in choosing the right mix of asset classes is on the rise. But since there’s really no alternative to owning multiple asset classes for the long haul, it’s a risk that strategic investors must face. To paraphrase Churchill, asset allocation is the worst possible strategy except when compared to the alternatives.