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The month of October began with the news that President Trump had tested positive for COVID-19 and ended with the U.S. reporting its largest-ever daily case record. Market volatility soared to its highest level since June, and investors are increasingly concerned that the domestic economic recovery could lose steam unless substantial fiscal support is forthcoming. Market behavior indicates that rates are expected to remain at extremely low levels for some time to come as central banks provide support to their economies.

To generate returns in line with expectations based on history, investors should consider incorporating nontraditional fixed income strategies to portfolios in a risk-conscious manner. In this month’s Key Investment Perspective, we describe strategies that can enhance income and total return potential along with the possibility of providing stability during times of market stress.

Key Takeaways

  • Global Equities: The S&P 500 Index declined by 2.7% in October while the Small Cap Russell 2000 Index (+2.1%) and the Russell Midcap Index (+0.6%) both increased. Value stocks outperformed growth equities for the second straight month. Largely due to Europe’s underperformance (-0.6%), the international equity market tumbled as fears of an impending recession drove investors toward sovereign bonds. The FTSE Emerging Markets Index rose 2.2% for the month.
  • Fixed Income: The 10-Year Treasury ended the month with a yield of 0.88%, up 0.19% from September. The combination of record Treasury issuance and investor confidence in the recovery drove investors away from safe, low-yielding securities and into higher-risk assets. The credit market and municipal bonds declined modestly in October (-0.2% and -0.3% returns, respectively).
  • Tactical Allocation: We are neutral overall to equities but recommend a shift away from international markets to the U.S. due to the safe-haven nature of the U.S. dollar and marketplace. We maintain our neutral recommendation to fixed income and continue to favor a modest allocation to high-yielding, opportunistic fixed income strategies. An allocation to alternatives can provide worthwhile diversification benefits for the right clients.