Markets Rally on Tariff Relief Hopes, Inflation Cools, but Bond Market Warning Looms

Market Summary

US Market: 5/23/2025 - 5/29/2025

• The S&P 500 recorded its strongest May since 1990, driven by investor optimism over potential easing of trade tensions. Despite earlier volatility, the index gained more than 6% for the month, as President Trump's signals of possible tariff relief bolstered market sentiment.. .
• Bank of America cautions that President Trump's proposed tax cuts, reduced tariffs, and lower interest rates could inflate a new market bubble. Analysts point to speculative surges in AI, tech stocks, and cryptocurrencies as signs of overheating, drawing parallels to past market bubbles.
• U.S. inflation cooled in April, with consumer prices rising just 2.1% year-over-year, the lowest since September. While concerns linger over President Trump's tariffs, their impact on consumer prices has been minimal so far, though durable goods saw a notable price uptick

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 14.0% 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 “Neutral” category.
• Factors contributed 11.2% to the total return this week, placing the portfolio in the “Very 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

• The International extreme Movers portfolio gained 12.3% this week which placed the sector in the Very 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 21.1% of the total return, earning the Alpha-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

• Consumer Discretionary surged this week to become the most represented sector in the US Extreme Movers portfolio with an 8% allocation. This ranks the sector in the 73rd percentile over the trailing twelve months and the 75th percentile since the portfolio’s inception. The Hotels & Restaurants industry contributed the most, accounting for 9% alone.
• Industrials was the second most represented sector this week, also with an 8% allocation. This placed the sector in the 77th percentile over the trailing twelve months and the 78th percentile since inception. The Aerospace & Defense industry led the sector, accounting for 10%.
• On the flip side, Materials was the least represented sector with a -8% allocation. This placed it in the 10th percentile on both a trailing twelve-month basis and since inception. All industries within the sector contributed to the negative allocation.

• Beta and Volatility factors were in favor this week, with three of the five landing in the top quartile for both the trailing twelve months and since inception. Wolfe’s Volatility ranked especially high, reaching the 89th percentile on a trailing twelve-month basis. Both the long and short books contributed to this exposure, with the long book having a more significant impact.
• Crowding factors were mixed. ETF flow exposure was notably low at -0.80, placing it in the 2nd percentile for the trailing twelve months and the 3rd percentile since inception. Both the long and short books contributed equally to this exposure. In contrast, hedge fund crowding was in favor, ranking in the 73rd percentile for the trailing twelve months and 69th percentile since inception.
• Quality factors were out of favor this week, with all metrics in this category ranking below the mean for both the trailing twelve months and since inception. Wolfe’s Profitability was particularly weak, falling into the 7th percentile since inception. The long book was the primary driver of this allocation.

International Extreme Movers Portfolio Exposures

• Financials was the most represented sector this week in the International Portfolio with a 9% allocation, placing it in the 71st percentile for the trailing twelve months and the 76th percentile since inception. Within the sector, Banks was the dominant industry, contributing more than two-thirds of the total allocation.
• Industrials was the second most represented sector this week with a 6% allocation, placing it in the 65th percentile for the trailing twelve months and the 77th percentile since inception. Aerospace & Defense was the leading industry within the sector, contributing roughly 4% on its own.
• Consumer Discretionary was the least represented sector this week with a -11% allocation, ranking in the 2nd percentile for the trailing twelve months and the 7th percentile since inception. Automobiles was the most significant industry driver, accounting for -7% of the total allocation.

• Many factors were muted this week, with most factors in the Beta & Volatility and Value categories landing near the mean on both a trailing twelve-month and since-inception basis.
• Quality factors were mixed. Profitability and Earnings Quality were out of favor, while Investment Quality was in favor. Earnings Quality had a -0.21 exposure, placing it in the 13th percentile for the trailing twelve months and the 16th percentile since inception. In contrast, Investment Quality showed positive exposure, driven primarily by the short book of the portfolio.
• Growth factors were also mixed. Barra’s Growth was slightly out of favor, with a -0.06 exposure that placed it in the 43rd percentile for the trailing twelve months and the 38th percentile since inception. In contrast, Axioma’s Growth was in favor, ranking in the 81st percentile for the trailing twelve months and the 76th percentile since inception. The long book was the primary driver of this positive exposure, with the short book also contributing but to a lesser extent.

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 slightly in favor this week with a neutral 0% allocation, placing the region in the 42nd percentile for the trailing twelve months and the 45th percentile since inception. Emerging Markets had a -1% allocation, ranking in the 50th percentile for the trailing twelve months and 46th percentile since inception.
• Within Developed Markets, Europe & the Middle East had the lowest representation at -12%, driven primarily by Sweden, which accounted for -7% alone. In contrast, the Americas was the most represented region with an 8% allocation.
• In Emerging Markets, Asia saw the lowest representation at -7%, largely due to China’s significant underweight of -26%. Europe, Middle East & Africa had a 3% allocation, with Greece as the most represented country at 2%. This placed Greece in the 97th percentile for the trailing twelve months and the 92nd percentile since inception.

Regards,

Jose