September was a cruel month for risky assets, delivering the worst batch of red ink among the major asset classes since the financial crisis was roaring in October 2008. Quite simply, there was no place to hide from the selling. Well, almost no place.
The safety of investment-grade bonds was the only game in town–Treasuries in particular. The Barclays U.S. Aggregate Bond Index stood out among the broadly defined asset classes last month with an attribute that was short in supply and high in demand: a positive return. This fixed-income benchmark led the pack in September, advancing 0.7% on the month. For the year through September 30, the Aggregate Bond Index is higher by 6.7%, another first-place rise. Bonds may be in a bubble, as so many analysts have said this year, but there’s no sign of popping yet.
Falling prices were the standard almost everywhere else among the major asset classes. U.S. stocks, for instance, tumbled nearly 8% in September. That’s five down months in a row, a rare wave of selling in U.S. equities that hasn’t darkened the performance ledger since the November 2007-March 2008 downturn.
What are the odds that U.S. stocks will suffer in October? Another down month would be six consecutive months of loss for equities when measured by calendar months. That’s rare, but not unprecedented. Since 1957, the S&P 500 on a price basis has suffered only three cases of non-stop monthly red ink for six months or more: the first six months of 1973; a string of nine straight monthly losses in 1974 through September of that year; and the April-through-September 1981 selling wave, according to the St. Louis Fed’s database.
As for the rest of last month’s losers, commodities were hit hardest, crumbling nearly 15% overall, based on the Dow Jones-UBS Commodity Index. That’s the steepest monthly loss in almost three years. Even gold’s safe-haven status was tarnished in September. No wonder, then, that the U.S. Dollar Index gained a hefty 6%. Gold and the world’s reserve currency have a habit of moving in opposite directions, and last month was no exception. But the rush to hold greenbacks came with consequences: sizable losses in unhedged foreign bond positions.
The potential for more volatility is alive and kicking for the week ahead, with the update for September payrolls scheduled for release this Friday. The consensus forecast calls for net job growth of 90,000, which would be considerably higher than August’s dismal gain of 17,000. But at a time when tolerance for mediocre news, much less bad news, is wearing thin, it’s anyone’s guess if a rise of 90,000 in Friday’s jobs report would be greeted with cheers. Then again, there’s little doubt what will happen if the crowd is surprised with a lower-than-expected number.