Markets Feel Supply Chain Woes and Commodity Price Pressures
Please see below for our Market Summary and Omega Point’s Top Surprise Factors of the week.
The Surprise Metrics measure each factor's return divided by its predicted standard deviation. On a trailing one-week basis and since the invasion on Feb 24, we continue to see multiple standard deviation moves across a broad number of factors that continue to shift each week and are a unique indicator of the market's pulse regarding the significance of the ongoing crisis and its ramifications. The Surprise Metrics were initially introduced in our Feb 27 Factor Spotlight: Quantifying the Impact of Russia's incursion into Ukraine.
For a deeper dive into the methodology, uses cases, and incorporation of Surprise Metrics into your decision-making, I encourage you to check our most recent factor spotlight series: Your Exposure to the New Economic Order - Part I, Part II, and Part III. And if you're interested in how to apply to macro specifically, we encourage you to check out our Mar 27 Issue on the topic.
Please don't hesitate to reach out to us if you have any questions, comments or to discuss ways to incorporate these and other metrics into your strategies.
US Market Summary and Surprise Metrics
US Market: 04/07/22 - 04/14/22
- All three major US indexes ended the short trading week with a loss. The Nasdaq was particularly hard hit with a 5-day decline of 2.56%, as tech stocks continue facing headwinds. The Dow was down 0.26% and the S&P 500 was down 1.86% over the trailing 5-day period.
- Inflation numbers were released on Tuesday, with CPI reportedly rising 8.5% in March from the prior 12 months. Since February, inflation was up 1.2%, which is the largest month-over-month rise since 2005.
- The Russia / Ukraine conflict passed the 50 day mark this week and continues to rage on. In a major blow to Russian forces, a flagship Russian warship, The Moskva, has sank, amid mixed reports on who is responsible for the damage.
- As COVID cases are on the rise and lockdowns continue in China, the CDC has extended the federal mask mandate for transit through May 3.
- Q1 2022 earnings season got underway this week with major banks Wells Fargo, Goldman Sachs, and Citigroup among the first to report.
- 30-year mortgage rates jumped past 5%, marking an end to historically low interest rates for the housing market.
- Elon Musk made headlines again this week with a $43 billion bid to take Twitter private.
OMEGA POINT SURPRISE METRIC - TOP MACRO AND STYLE FACTORS
- Commodity & Oil Beta showed an increase in surprise from last week, indicating continued upward price pressures on commodities as global supply chain concerns continue to send commodity prices to historic levels.
- HF Crowding saw a large upwards move in surprise this week. Though Short Interest remained relatively unchanged from last week, the move in HF Crowding signals continued slow-down of market de-risking.
- The slight move up in Developed Markets Beta provides some evidence of a slowing of the risk-off market moves.
- Growth in the US saw an increase in surprise this past week. Though Growth globally is still out of favor, there was a slight clawback over the past week.
- Value in Emerging Markets has seen strong favor by the market. US and Developed Markets Value are still experiencing downward pressure overall, but the increase in the surprise metrics indicates a potential rebound.
- Revisions showed a slight bounce-back as we continue into the early innings of Q1 2022 earnings season. This indicates a move towards some alignment between investors and sell-side analysts, though the magnitude of the surprise metric tells us there’s still a heavy mismatch.
OMEGA POINT SURPRISE METRIC - TOP SECTOR FACTORS
- Utilities saw downward pressure this week, despite the overall positive surprise.
- Industrials, led by Aerospace & Defense, continues on the rise, especially in Developed Markets, as investors likely react to unceasing conflict in Ukraine.
- Materials and Energy climbed, with global Fertilizers & Agricultural Chemicals showing a surprise of over 4.5 standard deviations. These moves reflect the knock on effects of global supply chain issues and commodity price pressures.
- Consumer Staples (not shown) is no longer in significant negative surprise territory, indicating continued upward moves in the sector and a potential signal of the market preparing for recession.
- Autos & Components saw a slight shift upwards, but generally remains in the significant negative surprise zone.