Need to Know: One of last quarter’s best performers has more life in it, says this portfolio manager

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What can be a tough month for investors, but great for pumpkin spiced anything, is under way.

And the start of the fourth quarter is looking cautiously optimistic judging by U.S. stock futures, though trade and political tensions are out there — headlines linked to the impeachment inquiry into Trump continue to trickle out.

Our chart of the day below, shows how the quarter held many happy returns for bond investors who sought safety from global economic jitters. And our call of the day from Gene Tannuzzo, deputy global head of fixed income and senior portfolio manager at Columbia Threadneedle Investments, is urging investors to keep the faith in that asset class.

For one, bonds act as a “shock absorber when other risk assets (like stocks) go down,” Tannuzzo tells MarketWatch in a follow-up email to a recent interview. To be sure, some stock investors will hold their breath until we reach the end of this year, after the 2018 Christmas meltdown.

Read: A ‘jinx month’ for the stock market is about to get under way

“There is an old phrase, ‘don’t fight the Fed.’ The Fed is cutting interest rates, and other central banks are easing also. This is a tailwind for bond prices,” he said.

As the consumer sector in Europe and the U.S. is “growing at a healthy pace,” Tannuzzo suggests investors focus on bond exposure linked to strength in the consumer, such as asset-backed securities — those backed by an asset pool, such as home equity or auto loans.

That faith in the consumer also makes mortgage-backed securities attractive, he said. Blamed for the financial crisis, but seemingly back en vogue now, this type of bond pools together home loans. It does of course come with risk.

But as manufacturing and industrial sectors are struggling, he suggests avoiding corporate debt that relies on the business cycle and economy. Otherwise known as cyclical sectors, they include autos, industrials and export-heavy manufacturers.

He also sees some early warning signs when it comes to that hunt for yield, such as in the bank loan market where he’s seeing highly leveraged issuers — those with big debt already — starting to come into the market. “Recently, investors have been pushing back, and these deals are not getting done,” said Tannuzzo.

And here’s one last piece of bond-related advice from him: “The energy market within high-yield bonds is struggling again with oil prices quite volatile. This could pressure default rates higher if energy prices drop further.”

Read: A ‘jinx month’ for the stock market is about to get under way

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The market

The Dow YM00, +0.14%, S&P ES00, +0.15% and Nasdaq NQ00, +0.23%  are modestly up. Oil US:CLV19 is firmer, while gold GCZ19, +0.16% is flat, and the U.S dollar DXY, +0.04% is rising, chiefly against the Aussie dollar AUDUSD, -0.7554%  after interest rates in that country were cut to a record low.

European stocks SXXP, -0.34% are mixed, while in Asia ADOW, +0.35%, the Nikkei NIK, +0.59%  rose after Japan raised sales taxes.

The chart

Our chart of the day from Deutsche Bank lays out the winners and losers from the third quarter. Silver SIZ19, +1.01%  clearly dominated, but some corporate and government bonds were also pretty clear winners, while Brent crude BRNX19, -1.87%  slumped.

And here’s the bank’s September roundup, which shows equities came out on top, mostly in Europe and emerging markets, while silver stumbled.

The buzz

Pharmacy retailers CVS CVS, +1.59%, Walgreens WBA, +1.65% and Rite Aid RAD, -4.53%  are taking Zantac off the shelves over a Food and Drug Administration warning that the heartburn medication may contain low levels of a potentially cancer-causing substance.

Credit Suisse’s CS, +0.41% CSGN, -1.06%  chief operating officer has resigned over a spying scandal surrounding the bank’s former wealth manager. A consultant linked to that surveillance is reported to have died, in what some unverified reports claim was a suicide.

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The economy

The Markit manufacturing purchasing managers index, the Institute for Supply Management’s manufacturing index, construction spending and auto sales are all on tap.

The tweet

China kicks off the 70th birthday of the Communist Party with a blowout parade.

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