Trade truce lifts markets, but debt and energy risks linger

Market Summary

US Market: 5/9/2025 - 5/15/2025

• The U.S. and China agreed to a 90-day halt on new tariffs, easing trade tensions and triggering a global equity rally. Investors poured nearly $20 billion into global equity funds, marking the highest weekly inflow in nearly two months. The S&P 500 extended its gains on renewed optimism. While the truce is temporary, it signals near-term relief for global supply chains and investor sentiment.
• Oil prices fell over $2/barrel on speculation of a U.S.–Iran nuclear deal that could boost global supply. At the same time, U.S. debates over scaling back clean energy incentives in the Inflation Reduction Act threaten over $500 billion in future green investments. The uncertainty hit energy stocks and raised concerns about long-term investment in both fossil fuels and renewables. Volatility in the sector may persist as geopolitical and policy risks collide.
• Emerging market (EM) stocks are experiencing a significant rally, driven by a weakening U.S. dollar, stabilizing Treasury yields, and signs of China's economic recovery. A weaker dollar typically benefits EM stocks by attracting global capital seeking higher returns. Additionally, growth expectations have improved for countries like China, Korea, Taiwan, and Vietnam following a pause in U.S.-China tariffs, increasing investor confidence in EM equities.

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 30% 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 “Very Volatile” category.
• Factors contributed 51.7% 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 20.8% this week which placed the sector in the Very 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 40.6% of the total return, earning the Very 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 remained the most represented sector in the portfolio this week, with a 28% allocation. This ranks in the 85th percentile over the trailing twelve months and the 94th percentile since the portfolio’s inception. The Semiconductors industry was the most significant contributor, accounting for 13% of the total allocation.
• Consumer Discretionary was the second-largest sector this week, with a 21% allocation—placing it in the 98th percentile for the trailing twelve months and the 9th percentile since inception. Within the sector, ‘Textiles, Apparel & Luxury Goods’ led with a 6% contribution, followed by ‘Hotels, Restaurants & Leisure’ at 4%.
• Utilities, on the other hand, dropped from a 4% allocation last week to -21% this week, making it the least represented sector in the U.S. portfolio. This sharp decline placed the sector in the 1st percentile over the trailing twelve months and the 3rd percentile since inception.

• Beta and Volatility factors were strongly favored this week, with three of the five factors in this category ranking at the top for both the trailing twelve months and since inception. Both the long and short books contributed to this elevated exposure, as investors sold low-volatility names while buying high-volatility ones.
• Growth factors were also in favor, with both factors landing in the top quintile. The portfolio’s long allocation to the Information Technology sector was the primary driver of this exposure, followed by a short allocation to the Consumer Staples sector as the second-largest contributor.
• Quality factors, on the other hand, ranked poorly this week. Notably, Barra’s Earnings Quality factor was at the bottom of the rankings on a trailing twelve-month basis. This was primarily driven by the long book, suggesting investors favored names with weaker earnings quality.

International Extreme Movers Portfolio Exposures

• Information Technology was the most represented sector in the International Extreme Movers Portfolio this week, with a 21% allocation. This ranked the sector at the top for both the trailing twelve months and since the portfolio’s inception. All industries within the sector contributed, with Semiconductors & Semiconductor Equipment being the most significant at approximately 7.5%.
• Financials ranked as the second most represented sector, with a 15% allocation—placing it in the 90th percentile over the trailing twelve months and the 87th percentile since inception. Within the sector, Banks accounted for more than half of the total allocation.
• Conversely, Consumer Staples was the least represented sector this week, with a -14% allocation. This placed it in the 1st percentile for the trailing twelve months and the 2nd percentile since inception. The Food Products industry was the largest contributor to the underweight, accounting for -5.33% alone.

• Beta continued to be in favor this week, with all beta-related factors showing increased exposure compared to last week. Barra’s Beta was particularly notable, more than doubling from the prior week and ranking at the top for the trailing twelve months and in the 98th percentile since the portfolio’s inception. While both the long and short books contributed, the short book played a significantly larger role.
• Value factors were also in favor, with all of them showing positive exposure. Earnings Yield stood out, ranking in the top decile across both the Barra and Axioma models. The long allocation to the Industrials sector was the primary driver of this exposure.
• In contrast, Quality factors were out of favor. Investment Quality declined from 0.11 to -0.23 week-over-week, placing it in the 3rd percentile over the trailing twelve months and 8th percentile since inception. This negative exposure was entirely driven by the long book, indicating a preference for names with lower investment quality.

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.

• Emerging Markets were in favor this week, with a 29% allocation. This placed the region in the 87th percentile for the trailing twelve months and the 85th percentile since the portfolio’s inception. In contrast, Developed Markets had a -29% allocation, ranking in the 7th percentile for the trailing twelve months and the 11th percentile since inception.
• Within Emerging Markets, Asia was the most represented sub-region, accounting for the full 29% allocation. Taiwan contributed 13% of this total, while China accounted for 12%, ranking in the 99th percentile since the portfolio’s inception.
• Among Developed Markets, the Europe & Middle East region had the highest representation at -12%, placing it in the 13th percentile for the trailing twelve months and the 27th percentile since inception. The Pacific region also contributed significantly at -11%, with Japan alone accounting for -15% of the total.

Regards,

Jose