Five Surprises From the Sell-Off
Morningstar's markets editor Jeremy Glaser explores surprises in Treasuries, traditions, dissents, earnings, and intensity during the correction.
Highlights:
- Treasuries have had really an incredible rally despite concerns about the debt ceiling, despite the Standard & Poor's downgrade. No matter what, people continue to see Treasuries as the safe haven, and continue to see them as this great liquidity pool and places they can put their assets. People still really see them as risk-free even if S&P says that they're not.
- Yeah, and another thing that was a little bit surprising about Treasuries, at least the bond market in general, was that when we looked at bond funds, some of the best-performing ones were really the index funds, really the ones that hold just a ton of government debt.
- There was a ton of volatility, and sectors that people traditionally thought that was very defensive like health care actually got hit pretty hard. As I think we have discussed before, people weren’t buying their medicine; people were putting off elective procedures. But in this sell-off, we really saw a return to form in a lot of traditional categories and with the traditional returns that we have seen before.
- So health-care stocks and consumer defensive stocks, like Procter & Gamble, actually performed relatively well. They are still off, but they did better than the market as a whole. Companies like basic materials firms and anything that was with energy, anything that has really leveraged to commodity prices, which were falling, did even worse in the market. This is what we would expect in kind of a traditional recession, a traditional downturn.
- Even on the capitalization spectrum, large-cap stocks did a little bit better than mid-cap stocks, which did a little better than small-cap stocks.
- Now, one thing that maybe was a little bit surprising, that it wasn’t traditional, was the emerging markets held up better than developed markets; people generally see developed markets as being less risk risky than emerging. But I think it shows in this emerging paradigm perhaps people see those markets that have growing middle classes and have relatively strong sovereign balance sheets. It's actually been less risky than investing in Europe or investing in the United States. So we will see if that’s a trend that can really continue on.
