Markets tumbled on tariffs, debt fears, and surging yields

Market Summary

5/16/2025 - 5/22/2025

• President Trump proposed a 50% tariff on EU imports and a 25% tariff on smartphones manufactured outside the U.S., targeting companies like Apple and Samsung. These announcements led to a 2.2% drop in the Dow Jones and a 6% decline in Apple shares, reflecting heightened investor anxiety over potential trade wars and supply chain disruptions.
• The 30-year U.S. Treasury yield spiked to 5.15%, driven by fears that new tax cuts and spending increases could balloon the federal deficit. This surge in yields prompted a sell-off in equities, with the S&P 500 and Dow Jones each falling over 2.5% for the week, as investors grew wary of higher borrowing costs and potential stagflation.
• Moody's downgraded the U.S. credit rating, citing concerns over the nation's fiscal trajectory amid escalating deficits. The downgrade contributed to increased volatility in the bond market and raised questions about the long-term sustainability of U.S. debt, leading investors to reassess risk and asset allocations.

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 17.4% 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 “Volatile” category.
• Factors contributed 42.6% to the total return this week, placing the portfolio in the “Very Factor-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 15.8% this week which placed the sector in the Volatile 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 32.1% of the total return, earning the 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 dropped to the bottom of the portfolio this week, with a -21% allocation. This ranks in the 17th percentile over the trailing twelve months and the 8th percentile since the portfolio’s inception. Semiconductors and Software were the two main contributors, accounting for -8% each.
• Health Care was the largest sector this week, with a 19% allocation that placed it in the 100th percentile for the trailing twelve months and the 94th percentile since inception. Biotech and Pharmaceuticals led this swing at 11% and 7% respectively.
• Consumer Staples also had a strong week, with an 11% allocation that ranked in the 89th percentile over the trailing twelve months and the 95th percentile since inception. Consumer Staples Distribution & Retail was the main industry driver at 6%.

• Beta was strongly out of favor this week, with all three beta factors ranking in the bottom decile for both the trailing twelve months and since inception. Both the long and short books contributed strongly to this negative exposure, as investors bought anti-beta names while selling high-beta ones.
• Growth factors were also out of favor, with Barra’s growth factor in particular landing in the bottom quintile both TTM and ITD. The portfolio’s long allocation was the primary driver of this exposure, though both sides were negative contributors.
• Hedge Fund crowding ranked poorly this week, landing in the 15th percentile TTM and 14th percentile ITD. This was driven by the short book, suggesting that investors sold names that are typically popular hedge fund longs.

International Extreme Movers Portfolio Exposures

• Similar to the US portfolio, Information Technology was the bottom sector in the International Extreme Movers Portfolio this week with a -17% allocation. This ranked at the 6th percentile for the trailing twelve months and just the 2nd percentile since the portfolio’s inception. ‘Electronic Equipment, Instruments & Components’ along with Semiconductors were the main industry drivers at -7% and -5% respectively. All industries except Communications Equipment contributed negatively.
• Consumer Discretionary also had a poor week, ranked as the second least represented sector at -11%. This allocation placed in the 2nd percentile over the trailing twelve months and the 7th percentile since inception. Within the sector, Hotels, Restaurants & Leisure was the largest industry contributor at -4%.
• Health Care launched to the top of the portfolio this week, with a 12% allocation that placed it in the 98th percentile for the trailing twelve months and the 97th percentile since inception. Mirroring the US portfolio, Pharmaceuticals and Biotech were the main drivers at 9% and 4% respectively.

• Beta and Volatility factors were out of favor this week, with both beta factors ranking in the bottom quintile TTM and since the portfolio’s inception. While both factors were similarly negative, Barra’s factor was driven by long anti-beta allocations, while Axioma’s factor was driven by negative exposures on both sides, particularly as investors shorted high-beta names.
• Value factors remained in favor, with all factors in the category showing positive exposure. Earnings Yield stood out again, ranking in the top quintile TTM in both the Barra and Axioma models. The short allocation was the primary driver of this exposure, suggesting that investors sold low-yielding names.
• In contrast to the US portfolio, Short Interest was strongly out of favor this week. The -0.63 exposure placed in just the 5th percentile over the trailing twelve months and 2nd percentile since inception. This negative exposure was driven equally by both sides of the book, indicating a preference for unpopular-shorts on the long side, and a consensus on popular-shorted names on the short side.

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 in favor this week, with a 33% allocation. This placed the region in the 90th percentile for the trailing twelve months and the 89th percentile since the portfolio’s inception. In contrast, Emerging Markets had a -32% allocation, ranking in the 5th percentile for the trailing twelve months and the 8th percentile since inception.
• Within Emerging Markets, Asia was the main driving region, accounting for -21% of the allocation. China contributed -15% of this total, with its position ranking in the 18th percentile since the portfolio’s inception. Within EMEA, Saudi Arabia saw a particularly low allocation of -6%, ranking in just the 4th percentile TTM and 2nd percentile ITD.
• Among Developed Markets, the Europe & Middle East region led the way at 40%, placing it in the 100th percentile for the trailing twelve months and the 99th percentile since inception. This was led by strong allocations to several European countries, including the UK, Switzerland, and France. All three countries placed in the top decile TTM.

Regards,

Vikram