Markets Have a Rocky Start This Month

Equity markets have had a rocky start this month, leaving investors searching for other places to park their money.




Unfortunately, those other places have also been falling. The NASDAQ(NYSEARCA:QQQ) Composite is down more than 5% in October, and the S&P 500(NYSEARCA:SPY) is on track for its fifth consecutive down day. Other assets, such as bonds, have also been falling as yields continue to rise. Gold (NYSEARCA:GLD) spiked in the first two days of the month but has sharply dropped since then. Hurricane Michael is hitting Florida, and oil futures have dropped as a result.

The following chart from Bloomberg shows the three major U.S. indexes since the beginning of October. The Dow Jones (the purple line) is down around 2.15% since the beginning of the month, while the S&P 500 (the green line) is down just over 3%. At the time of writing, the NASDAQ was down almost 5.4% since the beginning of the month.

three major U.S. indexes since the beginning of October

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Bonds have been selling off because of strong economic data. The continued growth in the economy favors stocks and riskier assets. Since bond yields move in the opposite direction of bond prices, yields have been rising. Higher yields in less risky assets, such as bonds, make stocks less attractive, creating a difficult environment for investors to navigate. The iShares 20+ Year Treasury Bond ETF (TLT), shown in the following chart, is down more than 3% from its closing price on September 28. Rising bond yields also make alternative assets and precious metals less attractive, resulting in falling prices in assets such as gold.

iShares 20+ Year Treasury Bond ETF (TLT)

It is unclear whether the remainder of October will provide relief or more turbulence for markets. If volatility calms, equities should perform strongly, especially given the expectation of stronger economic data in the final quarter of the year.

Sectors: Among the Sector Benchmark ETFs, the average momentum score decreased from 10.45 to 3.18 as domestic equity markets experienced a turbulent week. Health Care fell 13 points and lost its top spot. Energy surged ahead by three points, taking the lead. Utilities, an asset class investors typically move into when volatility increases due to high and steady dividend payments, gained the most this week (11 points) and is now in third place. The poorest-performing sector last week was Materials, which fell from -4 to -22, a 450% decline.

Factors: Among the Factor Benchmark ETFs, the average factor score decreased from 12.83 to 3.25. Yield remained flat, but since everything else fell this past week it is now the top factor, replacing Momentum. None of the factors gained this week. The poorest performer was Small Size, which fell from -4 to -17, a 325% decline. Growth was a close second, plummeting from 9 to -13, a 244% decline. Low Volatility moved up to the top three.

Global: Global Benchmark ETF momentum decreased this week from 0.27 to -10.27, a significant drop that seemed to have been felt around the world except in Latin America. That region—the only gainer for the week—jumped from 14 to 44, a 214% increase. Japan and the USA both dropped quite a bit, and the World Equity score fell from 7 to -5. China took quite a fall and remains at the bottom of the ranks with a score of -51.

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