These Were the Best-Performing Asset Classes in October. Will They Continue to Outperform?
Key Points
Commodities should continue to outperform as long as geopolitical tensions keep oil prices elevated.
Real estate investment trusts (REITs) are posting very strong results despite rising interest rates.
It was an October to forget for the U.S. stock market. The S&P 500 index fell almost 1% during the month, but the carnage was particularly bad last week, when tech stocks tanked amid disappointing third-quarter earnings. Stocks such as Alphabet, Dell Technologies, and Intel saw double-digit losses during the week.
That said, which asset classes outperformed in October? More importantly, can they continue to do so heading into the last two months of 2026?
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Surprisingly, real estate investment trusts (REITs) had a great month. They were up 4.8% in October, as measured by the Vanguard Real Estate Index Fund ETF (NYSEMKT: VNQ). That exchange-traded fund holds various types of REITs, including data centers, healthcare, industrial, and retail REITs, among others.
Commodities also had a good October. They rose 4.1% during the month, as measured by the iShares S&P GSCI Commodity-Indexed Trust (NYSEMKT: GSG). The ETF tracks the S&P Dow Jones GSCI index, which is heavily concentrated in energy commodities. GSG doesn't have physical ownership of commodities, however. It gains exposure to them via futures contracts.
Crude oil prices drove commodity indexes higher during the month
If you look at the price of the leader of commodities, crude oil, it's no wonder that ETF did so well in October. Brent crude, the international benchmark, remained above $100 a barrel for the entire month due to ongoing tensions in the Persian Gulf.
Image source: Getty Images.
The question for investors now is: Can REITs and commodities continue their run?
At first glance, the strong performance by REITs was a bit surprising. While the Federal Reserve didn't hike its target rate at its October monetary policy meeting, interest rates are clearly headed higher in the coming months, with futures markets expecting two to three more quarter-point hikes by the end of 2027. Typically, that would be bad news for REITs, as real estate values tend to decline when interest rates rise.
But the correlation between REIT values and interest rates has weakened this year due to strong fundamentals among REITs -- solid cash flows, earnings, and balance sheets -- likely driven by a healthy U.S. economy. I see that continuing in the coming months, so I think REITs can continue to perform well, absent an unexpected shock to the U.S. economy.
As for commodities, they should continue to do well (led by oil prices) as long as geopolitical tensions in the Persian Gulf and the war in Ukraine persist. Right now, it looks likely that the U.S.-Iran conflict will flare up again after the U.S. midterms are over, with no definitive conclusion to the conflict in sight.
So, it looks very possible that the asset classes that won in October could continue that winning streak well into November and December.
Matthew Benjamin has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Intel, and Vanguard Real Estate ETF. The Motley Fool has a disclosure policy.