Stocks Stay Up Despite Ending 8-Day Winning Streak

Market Summary

US Market: 11/3/2023 - 11/9/2023

• The US Market Indices experienced mixed but generally positive performance this week, following last week’s strong rally across the board. The Dow Jones had the lowest return, ending close to neutral at 0.15%. The S&P 500 came in higher at 1.17%, experiencing a drop on Thursday that ended an 8-day winning streak. The Nasdaq topped the group at 2.49%.
• Stocks saw a dip Thursday following an announcement from Federal Reserve Chair Jerome Powell that the US would not hesitate to tighten policy further if necessary to quell inflation to their 2% target. The rhetoric leaned more hawkish than expected, leading markets to push out expectations for the timing of the Fed’s first rate cut to July, instead of June, of next year.
• October consumer price data for China showed a drop of 0.2% year-over-year and 0.1% since September, stirring doubt over the chances of broad recovery for the world’s second largest economy. A decline in both these indicators has not been seen since November 2020, amidst the COVID-19 pandemic, and points to China’s ongoing struggle with disinflationary pressures.

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 returned 24.1%, making this the highest return since May 2023. The return landed in the 94th percentile both TTM and since inception, attaining a classification of “Very Volatile”.
• Factors contributed to 22.6% of the portfolio's volatility. This level of factor contribution stands at the 46th percentile since inception and classifies as “Neutral”. Style accounted for almost 70% of the total factor volatility.
• Interestingly, the return of the Market Intercept in the Axioma US risk model reached 3.35% this week, indicating one of the strongest weeks of return for the US market factor in the past 3 years. The return placed in the 95th percentile when compared to all weeks since November 2020.

International Extreme Movers Volatility and Factor-Driven Speedometers

• The International Extreme Movers Portfolio had a a strong week, reaching a return of 20.9% which places it in the 92nd percentile TTM and the 88th percentile ITD. Similar to the US portfolio, the week's performance was deemed "Very Volatile".
• Factors accounted for 35% of this week’s volatility, making this a “Factor-Driven” week. This level of factor contribution places in the 78th percentile TTM, and was driven almost 30% each by Style and Country factors.
• Echoing the US market, we also saw a very strong return for the Market Intercept factor within the Axioma Worldwide risk model this week, coming in just under 2.8%. This market return also ranked at the 95th percentile in the past 3 years.

US Extreme Movers Portfolio Exposures

• Information Technology leads the scoreboard this week, as an 8% allocation in IT Services a 5% allocation in Software propelled the Sector exposure to the 79th percentile of all weeks since inception.
• Energy saw a strong short allocation, which located it in the bottom decile both on a TTM and on an ITD basis. This negative exposure was explained mostly by short positions in Oil, Gas & Consumable Fuels.
• Health Care saw a strong short allocation for the second week in a row, led by Health Care Equipment & Supplies and Biotechnology.

• The US Portfolio leaned heavily towards Beta and Volatility, landing in the top quintile across most indicators. The long book contributed the most to these exposures, implying that investors piled on high-beta, high-vol names.
• Investors showed indifferent towards Growth while out of favor for Value, as both sides of the book contributed to the negative exposures to Earnings Yield and Dividend Yield.
• Oil Beta saw one of its most negative exposures since inception, at the 7th percentile ITD. Both sides of the book contributed equally to this exposure, showing that investor positioning is in expectation of adverse oil price movements.

International Extreme Movers Portfolio Exposures

• Information Technology and Energy in International Markets behaved similarly to its counterpart in the US Markets, being the top and bottom exposures, respectively. Communication Services and Consumer Discretionary were among the most positive sector exposures.
• The positive exposure to Information Technology resulted from positive allocations to all its industries, most prominently, Software and Electronic Equipment, Instruments & Components, each at 3.76%.
• The negative exposure to Energy came exclusively from the Oil, Gas & Consumable Fuels industry, with negative exposures to the sector in all geographic locations across the globe.

• International Markets showed very extreme factor exposures across the board, with all categories having at least one factor in the top or bottom decile.
• Markets geared towards Beta and Volatility with contributions from both sides of the book. Exposures to these factors landed in the top decile both on a TTM and ITD basis.
• Value landed in the lowest levels since we started collecting data in 2007, with contributions from the longs and the shorts. Quality factors also landed in very negative territory. All geographies, predominantly in Asia-Pacific, contributed to these negative exposures.
• Oil Beta and Interest Rate Beta saw heavy negative exposures, landing close to their lowest levels both on a TTM and ITD basis. Similarly, both sides of the book contributed to these exposures across a wide range of geographic locations.

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 landed close to the top decile ITD, while Developed Markets landed in the bottom decile ITD. This discrepancy can be explained mostly by the allocations of Japan (DM) and Korea (EM).
• Korea’s exposure of 25% landed in the 99th percentile ITD and explained more than three quarters of the allocation to Emerging Markets. Conversely, Japan’s exposure of -33% landed in the 7th percentile ITD and explained almost all of the allocation to Developed Markets.
• Other notable Country exposures include Brazil in the long book, at 9% weight and 85th percentile ITD, and Saudi Arabia in the short book, at -3% weight and 3rd percentile ITD.

Regards,
David