Global Markets React as Trade Tensions Ease

Market Summary

US Market: 5/2/2025 - 5/8/2025

• The U.S. is considering a move to lower tariffs on Chinese goods to below 60% as a first step in ongoing trade negotiations, with expectations that China may respond in kind. Early signs of the tariffs’ impact are already visible as China’s exports to the U.S. have declined sharply following the imposition of levies exceeding 100%.
• Easing tariff tensions have supported a rebound in European equities, with many markets recovering losses triggered by the trade war. Germany’s DAX index has led the rally, surpassing its previous all-time high set in March. Investor sentiment has also been lifted by indications that the European Central Bank may implement another rate cut as early as next month.
• More companies across Asia are looking for ways to hedge currency risk without relying on the U.S. dollar, opting instead to trade directly in local currencies like the yuan, dirham, and euro.

Extreme Movers Portfolio Performance

Note: Extreme Movers definitions can be found in the Factor University section on our website.

US Extreme Moves Volatility and Factor-Driven Speedometers

• The U.S. Extreme Movers portfolio returned 22.2% this week, ranking in the 92nd percentile over the past twelve months and the 91st percentile since inception. This strong performance places the week in the “Very Volatile” category.
• Factors contributed 20.4% to the total return this week, placing the portfolio in the “Alpha Driven” category. This level of factor influence ranks in the 25th percentile over the past twelve months and the 37th percentile since inception.

International Extreme Movers Volatility and Factor-Driven Speedometers (13.8%: Calm, 36.2% Very Factor-Driven)

• The International extreme Movers portfolio gained 13.8% this week which placed the sector in the Calm category. This level of return ranked in the 14th percentile for trailing twelve months and 35th percentile since the portfolio’s inception.
• Factors accounted for 36.2% of the total return, earning the Very Factor-Driven category. This level of factor return ranks in the 82nd percentile for trailing twelve months and 83rd percentile since the portfolios inception.

US Extreme Movers Portfolio Exposures

• Information Technology remained the most represented sector in the US portfolio, though it came down from last week’s allocation. The 14% allocation put the sector in the 71st percentile on a trailing-twelve-month basis and 79th percentile since-inception. Semiconductors drove 7% of this and all industries were positive contributors.
• Industrials saw a boost, earning an 11% allocation that placed in the 93rd percentile over the trailing twelve months and 91st percentile since inception. Construction & Engineering along with Electrical Equipment drove most of this, while Professional Services and Building Products saw negative contributions.
• Healthcare saw a significant shift this week, falling from a 10% allocation last week to -23%. This change pushed the sector into just the 8th percentile over the trailing twelve months and the 4th percentile since inception. Biotechnology was the main driver at -10%, followed by Pharmaceuticals at -5%.

• Beta remained in favor this week, while Volatility turned negative, ranking in the bottom decile over the trailing-twelve-months. The anti-vol positioning was driven by the short book as investors sold high-vol names. Beta on the other hand was driven by both sides, with the long book driving more of the positive allocation.
• Dividend Yield continued to rank low this week, while Earnings Yield bounced back to positive territory. While both the long and short books contributed to the negative Dividend Yield exposure, the short book continued to be the stronger driver—indicating investors were shorting names with high Dividend Yield exposure. On the other hand, Earnings Yield was driven solely by the short book as investors sold low-earning stocks.
• Short Interest pushed further negative this week, ranking in the bottom quintile of the trailing twelve months as investors shorted popular names, while also buying low-short interest longs.

International Extreme Movers Portfolio Exposures

• Similar to the US portfolio, Information Technology was the most represented sector in the International portfolio this week with a 17% allocation. This placed in the 95th percentile on a trailing twelve-month basis and the 98th percentile since inception. Semiconductors led the contributions at 7%, followed by Technology Hardware, Storage & Peripherals and Electronic Equipment at 6% each.
• Industrials rose to an 11% allocation this week, placing in the 90th percentile on a trailing twelve-month basis and the 92nd percentile since inception. Aerospace & Defense, Transportation Infrastructure, and Passenger Airlines were the main positive contributors at 3% each, while Professional Services and a few other industries contributed negatively.
• Healthcare dropped to the bottom of the portfolio this week, with a -9% allocation that placed the sector in the 14th percentile on a trailing twelve-month basis and the 7th percentile since inception. Similar to the US portfolio, Pharmaceuticals and Biotechnology were the main drivers.

• Beta was in favor this week, with both Barra and Axioma’s factors ranking in the top quintile over the trailing twelve months. This exposure was driven by the short book, indicating that investors were selling names with low or negative market beta.
• Oil and Interest Rate Beta were both moderately positive, ranking around the 50th percentile since inception. Oil beta was driven by the short book, as investors bet against names that rise with oil prices. Interest Rate beta was driven primarily by the long book, as investors bought names that benefit from rising rates.
• Hedge Fund crowding was noticeably low this week, ranking in just the 9th percentile TTM as investors bought less popular names on the long side. Short Interest, on the other hand, bounced back from last week’s low to a positive allocation that ranked near the 70th percentile TTM and ITD. The long book was the main driver, indicating that investors bought names with high short interest.

International Extreme Movers Portfolio Country Exposures

This chart presents the portfolio's exposures to various groups in the Developed and Emerging Markets, highlighting the three most notable country contributors for each respective group's allocation.

• Developed Markets were out of favor this week, with a -4% allocation, placing the region in the 30th percentile for the trailing twelve months and the 39th percentile since inception. In contrast, Emerging Markets held a 4% allocation, positioning it in the 58th percentile for the trailing twelve months and the 52nd percentile since inception.
• Within Developed Markets, Europe & the Middle East drove most of the negative allocation, with several European countries contributing -2% and ranking in the bottom quintile for the trailing twelve months. The Pacific was the region’s only positive contributor, with Hong Kong and New Zealand standing out.
• In Emerging Markets, Asia was the main contributor, with Taiwan accounting for 36% alone - it’s highest allocation both TTM and since inception. Other regions had negative contributions, with Brazil standing out at a -15% allocation that ranked in the bottom decile TTM and ITD.

Regards,

Jose