Markets Decline on Oil Selloff and Soaring Jobs Growth

Market Summary

US Market: 9/29/2023 - 10/05/2023

• US Headline Indices were steadily in the red for the week ending 10/5. The Nasdaq came in highest at -0.4%, while the S&P and the Dow struggled with weekly returns of -1.4% and -1.6%, respectively.
• September nonfarm payrolls data released Friday showed stronger than expected job growth. The month’s 336,000 increase was almost double the consensus estimates, while the unemployment rate remained flat at 3.8%. The data bolstered concerns that the economy is a ways from cooling down, which could keep Fed policy tighter for longer.
• Oil prices faced a sharp sell off this week, on course for their worst week since March. US crude oil dropped close to 9% over the week and were down almost 14% compared to last week’s high. The selloff came as the US faced faltering demand in gasoline consumption, as well as broader concerns over international demand for crude oil with the rising dollar.

Extreme Movers Portfolio Performance

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

US Extreme Movers Volatility and Factor-Driven Speedometers

• The US Extreme Movers Portfolio posted a return of 13.6%, placing it just within the "Neutral" category for the week. Its volatility was at the 25th percentile TTM and the 59th percentile ITD.
• Factors accounted for 28.1% of the overall volatility, designating this week as "Factor-Driven" and ranking it at the 67th percentile TTM. Industry and style factors made up fairly equal parts of the factor volatility.

International Extreme Movers Volatility and Factor-Driven Speedometers

• International markets were quiet this week, with a 12.4% return that placed close to the 20th percentile both TTM and ITD. This classified the week as “Calm”.
• Factor contribution continued to be exceptionally high, with the 44.4% standing at the 96th percentile for both TTM and ITD metrics. Country factors accounted for a third of the factor volatility, while industry factors contributed close to a quarter.

US Extreme Movers Portfolio Exposures

• Energy went from a 24% long allocation to a 24% short allocation in one of the largest single-week reversals we’ve observed in some time. Oil, Gas, & Consumable Fuels made up 19% of that allocation.
• Software and Semiconductors accounted for 22% of the 28% long allocation to Information Technology. Information Technology had been largely out of favor since the end of August but has reached its 94th percentile since inception this week.
• Entertainment stocks led the 12% long allocation to Communication Services, which landed in the 97th percentile since inception and the 94th percentile on a trailing-twelve-month basis.
• All Utilities industries were short but Electrical Utilities and Independent Power & Renewable Electricity accounted for the lion’s share of the 13% short allocation.

• The US portfolio flipped strongly into beta through its long allocation to Information Technology but was underexposed to residual volatility factors due to its short allocations to Energy and Health Care.
• The growth and value posture was more pronounced this week as value exposures were negative across the board. Nearly all value exposures fell in the lowest quartile since inception.
• The short allocation to Energy dictated much of the anti-macro positioning. The -1.01 exposure to Oil Beta hit just the 4th percentile on a trailing-twelve-month basis and the 8th percentile since inception as oil prices came down from their highest levels in over a year.

International Extreme Movers Portfolio Exposures

• Banks were the largest industry allocation in the International portfolio at 15% which drove a 14% long allocation to Financials. Chinese bank stocks accounted for half of that position.
• Taiwanese and Chinese Semiconductor and Tech Hardware, Storage, & Peripherals stocks pushed Information Technology to the largest sector allocation of the week. The 17% long allocation marked the 98th percentile since inception.
• The 10% short allocation to Energy was made up entirely of Oil, Gas, & Consumable Fuels stocks. Canadian stocks contributed over 4% of that allocation.

• Beta exposures were held neutral due to offsetting contributions from Consumer Discretionary and Financials while residual volatility factors were only moderately positive due to the long allocation to Financials.
• Long allocations to Information Technology and Industrials resulted in a bias toward growth and quality and away from value. The 0.3 exposure to the Growth factor in Barra’s Global Long Term model was the highest over the last twelve months.
• Like the US portfolio, the International portfolio had significantly negative exposures to both Oil Beta and Interest Rate Beta, both of which were driven by short allocations to Energy and Industrials.

International Extreme Movers Portfolio Country Exposures

The 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.

• Emerging Markets outperformed Developed for the second week in a row, though to a lesser degree. The 26% long allocation to Emerging Markets marked its 84th percentile on a trailing-twelve-month basis.
• Japan saw its most significant short allocation on a trailing-twelve-month basis. The 36% short was driven largely by Industrials and Consumer Discretionary stocks.
• China maintained its position as the largest allocation this week. Financials and Information Technology stocks accounted for over 12% of the 22% long position.

Regards,
Reshma