October 2019 was an odd month for the capital markets. The S&P 500 produced another all-time high and generated a 2.2% total return (IVV) for the month, but some of the other stellar performers during the year lagged while other surged. Let’s look at each of the major sectors that deviated from the norm.
High dividend stocks have been strong performers since the Great Recession in 2008/2009 mostly matching the 10-yr total return of the S&P 500, but generating much more income that is a positive trait for investors looking for spendable income. However, the return profile has not been smooth as YTD performance in 2019 has been lackluster with some lags. October is no exception with many of the major high dividend ETFs lagging the S&P.
Likewise, previous YTD stars in the equity space like factor exposures in low volatility and momentum took a breather from outperformance in October. The USMV and MTUM ETFs from iShares representing min vol and momentum lagged the S&P 500 in October with total returns of -0.23% and 0.65%, respectively.
Meanwhile, developed and emerging market equities represented by SCHF and SCHE took a shot at catching up with the U.S. market with some material outperformance with respective monthly returns in October of 3.14% and 5.33%
In the fixed income arena we saw some normalization of returns that were outsized during the first three quarters of 2019. Unless the U.S. were to follow the majority of the developed world into negative rate territory, bonds had to give back its extraordinary YTD gains earned prior to Sept. Such was the case in October as all sectors in the fixed income space produced flat to negative returns.
The capital markets are dynamic and sector leadership will constantly rotate as fundamental, technical and behavioral factors play out. It is not reasonable for long term strategic expectations to play out each and every month, quarter, or even year.