Commodities And Bonds Rose Last Week As Stocks Tumbled

US and foreign stock markets fell sharply last week as broadly defined commodities and bonds gained ground, according to a set of exchange-traded products representing the major asset classes. Growing concern over several economic and political risk factors have been weighing on stocks and the week ahead appears set to start with a new round of volatility.

US stock futures in early trading on Monday point to a lower opening today. “Another day, another reason to sell risk,” says Stephen Innes at OANDA, a brokerage. “Equity markets remain in a world of pain with everyone in search of a very elusive silver lining.”

As for last week’s pain, the US stock market dished out more of it vs. the other slices of the major asset classes. Vanguard Total Stock Market (VTI) dropped 4.6%, closing near an eight-month low at the close of the trading week on Friday (Dec. 7).

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On the flip side, broadly defined commodities posted the strongest gain last week for the major asset classes. The iPath Bloomberg Commodity (DJP) popped 1.5%, its second weekly gain.

Last week’s risk-off bias in stocks weighed on an ETF-based version of the Global Markets Index (GMI.F). This investable, unmanaged benchmark that holds all the major asset classes in market-value weights slumped 2.6% — the third weekly loss in the past four weeks for GMI.F.

For the one-year return (252-day trading days), US real estate investment trusts (REITs) have taken the lead for the major asset classes. Vanguard Real Estate (VNQ) is currently ahead by a modest 3.1% on a total return basis for the trailing 12-month period.

Despite the recent selling, the US equity market is clinging to a small advance on a year-over-year basis: VTI is up 1.2% after factoring in distributions.

The biggest loser for the one-year window is in foreign stocks in developed markets. Vanguard FTSE Developed Markets (VEA) is under water by a hefty 9.9% as of Friday’s close vs. the year-earlier price.

GMI.F is in the red for the one-year change, too, via a modest 2.4% decline.

Ranking the major asset classes based on drawdown reveals that US investment-grade bonds are suffering the smallest peak-to-trough slide for the major asset classes, as of last week’s close. Thanks to the recent rally in Vanguard Total Bond Market (BND), the ETF is just 1.6% below its previous peak.

Broadly defined commodities are still posting the steepest slide from the previous peak. The drawdown for the iPath Bloomberg Commodity (DJP) is nearly -50%.
GMI.F’s current drawdown is a relatively moderate -8.8% at the moment.

GMI.F’s current drawdown is -8.8%.

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By James Picerno