October Selloff Leaves Few Places to Hide

That October proved tough for stocks won’t come as a surprise to seasoned investors who still remember some quite challenging months in the past. What is notable this time around, however, is that investments meant to mitigate risks and offset some of the declines from equities also lost money. Understanding why illustrates some of the difficult challenges facing investors in a market greatly distorted by prolonged central bank intervention, and now dealing with weakening economic fundamentals and delayed fiscal policy support.

Let us start with the numbers. For a second consecutive month, the S&P 500 Index declined, dropping 2.8% in October and, in the process, largely erasing most of its gains for the year. The Dow’s 4.6% monthly loss took its year-to date decline to 7%. Even the Nasdaq Composite Index, the persistent out-performer among the three, lost 2.3% and saw its gains for the year reduced to a still respectable 22%. Meanwhile, the bear steeping of the yield curve for U.S. government bonds translated into losses for most risk-mitigating fixed-income exposures. As for gold — an alternative allocation that has gained greater popularity recently — it wasn’t much help either. The precious metal’s price was little changed during the month.