Weekly Market Thought of the Week – Global Monthly Focus

In 2018, investors experienced two corrections (i.e., a drop of 10% from a prior peak) in the U.S. equity markets: one in early February and the more recent one in October. However, the two corrections had very different impacts on asset classes, and the contrast between the two is worth a deeper look. The first-quarter correction felt unusual in that very few assets were spared the pain. The sectors and style of stocks that are typically spared during market sell-offs did not fare well, and assets such as gold and U.S. aggregate bonds also failed to preserve capital in a manner consistent with long-term historical trends. October saw a return to the historical norm with defensive stocks and sectors outperforming growth-style stocks by nearly 3%. Defensive sectors such as utilities and consumer staples were positive, thus providing a safety net for investors. Moreover, as panic took hold in October, high-quality core bonds (represented by the U.S. Aggregate bond index) posted small but positive returns as investors sought the safety of U.S. government bonds.