A Market Flight to Quality

Please see our Market Summary and Omega Point's Top Surprise Factors of the week below.

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. We introduced the Surprise Metrics 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.

US Market Summary and Surprise Metrics

US Market: 05/06/22 - 05/12/22

• All three major US indices struggled again this week. The Nasdaq was the worst of the three, down -7.04% over the trailing five-day period ending May 12. The S&P lost 5.23%, and the Dow lost 3.84%. The Dow recorded its fifth straight week of losses for the first time since 2012.
• April’s CPI data was released this week, showing a slow-down in consumer inflation at 8.3% year-over-year. That figure was still higher than consensus estimates at 8.1% before the release.
• Elon Musk announced on Twitter Friday that his Twitter takeover bid was “on hold” before clarifying that he is looking forward to getting the deal done. Twitter stock was down almost 10% in Friday’s trading.

Omega Point Surprise Metric - Top Macro and Style Factors

• Beta had its worst week since the onset of the conflict. High beta and high residual volatility stocks across markets plummeted this week, moving Surprise Metrics back above two standard deviations in some cases.
• The move away from beta and volatility was accompanied by another strong push into Earnings Yield, which continues to be the highest Surprise style factor across models.
• Macro factors pulled back slightly, for the most part, this week. Despite volatility in both directions, macro, in general, has had less directional movement over the past two weeks.
• During the conflict in Ukraine, we’ve pointed to deleveraging, as evidenced by a sell-off in HF Crowding and a rally in Short Interest. This week, we saw a parallel shift downward across both crowded long and short names in a period when only about 5% of Russell 1000 stocks saw a positive return.

Omega Point Surprise Metric - Top Sector Factors

• Energy was the lone sector with a robust positive Surprise performance this week, mainly concentrated in Energy Equipment & Services and Oil, Gas, & Consumable Fuels.
• Financials continue to sit firmly at the bottom of the Surprise list as industries within the sector broadly sold off again. The most significant downward moves came in Banks, Capital Markets, and Diversified Financials.
• The market moves, in general, were more potent this week than the prior month. Software & Services experienced a -1.27 movement in Surprise while Metals & Mining and Other Materials were close behind at -1.23 and -1.20, respectively. These industries saw the most significant one-week Surprises since the last week of February.

Regards,
Kevin