Big Tech Earnings Week Overshadowed by Economic Slowdown

Market Summary

US Market: 7/26/2024 - 8/1/2024

• US headline indices were positive this week. The Dow led with a 1.0% return over the five trading days ending Thursday. The S&P followed at 0.9%, while the Dow came finished at 0.7%.
• Friday morning’s US jobs report showed a substantially slower rate of growth than expected. Nonfarm payrolls grew by 114,000 in July which was 38% below the 185,000 Dow Jones Estimate.
• The unemployment rate also rose to 4.3% from 4.1% in June which is the highest level since October of 2021. The S&P 500 was down as much as -2.6% in Friday’s morning session.

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 saw a 13.6% return this week. This ranked in the 58th percentile since inception, and categorizes this week as “Neutral”.
• Factor influence continued to trend lower as 14.3% of the portfolio’s return was attributable to factors. That level falls in the 17th percentile since inception and marks this week as “Very Alpha Driven.”

International Extreme Movers Volatility and Factor-Driven Speedometers

• The International Extreme Movers portfolio pointed to more volatility this week as it returned 15.8%. This jumps to the 63rd percentile since inception and categorizes this week as “Volatile”.
• Factors accounted for 21.9% of the portfolio’s return which marks the 27th percentile since inception. That factor contribution places this week in “Alpha-Driven” territory.

US Extreme Movers Portfolio Exposures

• Consumer Discretionary jumped to the top of the US portfolio with an 8% allocation this week, after placing last the week prior. This reached the 81st percentile on a trailing twelve-month basis. Specialty Retail and Household Durables were the main industry drivers.
• Information Technology stayed on the short side of the portfolio with a -9% allocation, placing the sector in the 21st percentile since inception. All industries except Communications Equipment and IT services had negative allocations, with Semiconductors & Semiconductor Equipment remaining the most significant at -5.75%.
• Health Care and Consumer Staples also had poor weeks, with -6% and -5% allocations respectively that landed in the bottom tercile since inception. Health Care was driven by strong negative allocations in Biotech and Healthcare Equipment, despite a large positive allocation to Life Sciences Tools & Services. All industries were negative in Consumer Staples, with Household Products being the main driver.

• Beta was back in favor this week, with all factors landing near or above the 60th percentile ITD. The long side of the portfolio drove most of this exposure, suggesting investors bought higher beta names. Volatility was out of favor, with exposures landing in the bottom quintile ITD. This was driven by the short book, as investors sold high-vol names.
• Earnings Yield factors were positive this week. Earnings Yield in the Wolfe model was notably high at 0.54, landing in the top quintile ITD and TTM. Both sides of the book contributed positively in all models, but the long book was the primary driver in Axioma and Barra, while the short book was the primary driver in Wolfe.
• Interest Rate Beta was significantly negative this week, landing in just the 14th percentile over the trailing twelve months. The long side of the book was the primary driver, as investors bought stocks that do well as interest rates fall. The short side of the book was also negative, as stocks that do well with rising rates were sold.
• HF Crowding was slightly negative, landing in the 38th percentile since inception, as investors sold popular hedge fund longs. Conversely, Short Interest was slightly positive as investors bought popular shorts in the long book. The combination of these two factors suggests that hedge fund managers may have felt some pressure on both sides of their book.

International Extreme Movers Portfolio Exposures

• Health Care was the top sector in the International portfolio this week, with an 8% allocation that reached the 89th percentile since inception and 87th percentile over the trailing twelve months. Over half of this allocation was driven by Life Sciences Tools & Services.
• Industrials was not far behind with a 6% allocation that landed in the 77th percentile since inception and the 70th percentile over the trailing twelve months. Capital Goods drove most of this exposure, particularly within India and South Korea.
• Similar to the US portfolio, Information Technology remained the most significant short sector with a -12% allocation that landed in just the 9th percentile TTM and 6th percentile ITD. Technology Hardware, Storage, & Peripherals contributed over half of this exposure and was driven almost entirely by Taiwanese securities.

• Beta was out of favor, with all factors landing below the 50th percentile TTM and ITD. The low Beta was driven by the long book as investors bought anti-beta names. Volatility factors were mixed, with Barra showing a slightly positive exposure, and Axioma showing slightly negative. Both models suggested that investors were both buying and selling higher-vol names this past week.
• Barra’s Growth factor was in favor this week, showing an exposure of 0.07 which placed just shy of the 3rd quartile over the trailing twelve months. This was driven by investors buying high growth names, particularly in the Materials sector.
• Crowding and Short Interest were both slightly negative as investors bought unpopular hedge fund longs and unpopular shorts on the long side of the book. The low short interest was particularly driven by Industrials and Financials, while the low Crowding was driven by Industrials and Consumer Staples.

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.

• Developed Markets were out of favor this week, with a -2% allocation that placed in the 34th percentile on a trailing twelve-month basis and the 41st percentile since inception. Emerging Markets held a 3% allocation that placed in the 60th percentile over the trailing twelve months.
• Within the Developed Markets, the Europe & Middle East region was most represented with a -10% allocation. Spain was the largest contributor, with a -3% allocation that represented just the 4th percentile over the trailing twelve months.
• Asia drove the Emerging Markets, with a long 11% allocation that landed in the 69th percentile on a trailing twelve-month basis. This was largely due to a 17% allocation to India, which reached the top decile on both a TTM and ITD basis.
• Despite the overall positive allocation to Emerging Markets, the Europe, Middle East & Africa region saw notably low positions, including a -6% allocation in Turkey that ranked in just the 7th percentile TTM.

Regards,
Kevin