DeepSeek's Disruption Shakes Markets, Tech Stocks Begin to Rebound

Market Summary

US Market: 1/24/2025 - 1/30/2025

• Major U.S. stock indices saw declines this week, with the Nasdaq suffering the largest drop, falling 1.85%. The S&P 500 followed with a 0.78% decline, while the Dow experienced a more modest loss of 0.71%.
• It was a turbulent week for U.S. tech stocks following DeepSeek's announcement. The Chinese startup unveiled its new AI assistant, developed at a significantly lower cost than its US competitors. This raised concerns about the future demand for Nvidia's high-end chips, leading to the largest single-day loss in stock market history on Monday, which also impacted other tech stocks.
• U.S. officials are investigating whether DeepSeek acquired advanced Nvidia semiconductors through third parties in Singapore, potentially circumventing U.S. restrictions on chips used for AI applications.
• Both Apple and Intel reported strong earnings. Apple provided reassuring revenue forecasts, while Intel surpassed estimates, causing both stocks to rally in Friday’s premarket trading.

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 Speedometer (19.9%, Very Volatile, 25.8 Neutral)

• The US Extreme Movers portfolio delivered a 19.9% return this week, categorizing it in the Very Volatile range. This performance ranks in the 90th percentile for the trailing twelve months and the 88th percentile since the portfolio's inception.
• Factors contributed by 25.8% of the total return, placing this level of factor performance in the 65th percentile for the trailing twelve months and the 56th percentile since the portfolio’s inception, earning the Neutral classification.

International Extreme Movers Volatility and Factor-Driven Speedometers (14.4%, Neutral, 26.3% Neutral)

• The International Extreme Movers Portfolio posted a 14.4% return this week. This return ranks in the 22nd percentile for the trailing twelve months and the 43rd percentile since the portfolio’s inception, earning a Neutral classification.
• Factors accounted for 26.3% of the total return. This level of factor performance falls in the 55th percentile for trailing twelve months and the 46th percentile since inception and gives it the Neutral Category.

US Extreme Movers Portfolio Exposures

• Consumer Discretionary led the US portfolio this week, surging to a 22% allocation that placed in the 97th percentile over the past year (TTM), and the 96th percentile since inception (ITD). All industries except Automobiles and Leisure Products contributed positively, though Hotel, Restaurants, & Leisure was the main driver with a 10% position.
• Communication Services also saw a strong week, jumping to a 12% allocation that placed in the 98th percentile TTM and 97th percentile ITD. Interactive Media Services (4%), Entertainment (3%), and Media (3%) were the largest industry allocations.
• Information Technology took a big fall from last week’s top spot in the portfolio, landing in the 19th percentile TTM and 13th percentile ITD with its -16% allocation. Despite Software and IT Services seeing positive allocations, the sector’s position was driven by the heavy short position in Semiconductors, which reached -20%.
• Industrials was the portfolio’s bottom sector with a -20% allocation that was the lowest we’ve seen over the trailing-twelve-months. Over half of the exposure was driven by Professional Services & Electrical Equipment, which both saw -6% allocations. Most other industries contributed negatively, with the exception of Ground Transportation and Machinery.

• Beta and Volatility factors diverged this week as Beta saw negative exposures falling below the 20th percentile (both TTM and ITD), while Volatility swung positive and above the 20th percentile TTM. The negative Beta was driven largely by the short book, as investors sold high-beta names. Volatility was driven instead by long names, with investors leaning into higher-vol buys.
• Value factors were mixed but fairly muted this week-over-week, while Growth remained positive. The Growth exposure was driven by both long and short names, suggesting that investors simultaneously bought higher-growth names and sold low-growth names.
• Interest Rate Beta and Oil Beta were both out of favor this week. Interest Rate beta landed in the 19th percentile TTM, largely due to the large shorts in Tech, Energy, and Industrials this week. Oil Beta was driven by both the long and short book, particularly within the Consumer Discretionary and Energy sectors.
• HF Crowding was even more positive this week, rising to the top percentile on a trailing twelve-month basis as investors bought into popular longs. Short Interest, on the other hand, was only slightly positive, reaching the 64th percentile TTM, as investors both bought and sold un-popular shorts.

International Extreme Movers Portfolio Exposures

• Like the US portfolio, the International Extreme Movers portfolio allocated the most to Consumer Discretionary this week. The sector’s 8% position reached the 85th percentile TTM and 84th percentile ITD. Broadline Retail was the biggest driver, though all sectors except Automobile Components and Textile, Apparel & Luxury saw positive allocations.
• Financials was the second largest allocation in the International portfolio at 7%. This placed in the 64th percentile TTM and 70th percentile ITD. Banks was the overwhelming driver of this allocation at 9%, while Insurance and Financial Services detracted 1% and 2% respectively.
• Energy remained the bottom sector in the International portfolio this week, maintaining its -10% positioning and placing in just the 3rd percentile TTM and 11th percentile since inception. Oil, Gas & Consumable Fuels was again the overwhelming driver.

• Appetite for risk was low in the International portfolio, with Beta and Volatility factors both seeing negative exposures that all landed below the 50th percentile since inception. The low volatility was driven largely by the short book, as investors avoided higher-vol names. Beta was slightly mixed, with the Barra factor indicating that investors were buying more low-beta names, while Axioma’s factor suggested they were shorting high-beta names instead.
• Growth was out of favor this week, with both factors landing in the bottom tercile since inception. This came as investors shorted higher-growth names and bought lower-growth names, particularly in Financials, Energy, and Industrials.
• Oil Beta was particularly negative this week, with its exposure reaching just the 14th percentile TTM and 24th percentile ITD. This came as investors bought low-oil beta and sold high-oil beta names, particularly within Energy and Materials.
• HF Crowding exposure was negative, ranking in the 27th percentile TTM as investors bought less-popular names this week. Short Interest was the opposite, with a positive exposure ranking in the 63rd percentile TTM, as investors sold un-popular shorts.

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 again this week, with a 14% allocation that placed in the 58th percentile TTM and 65th percentile ITD. Emerging Markets had a -14% allocation which placed in the 29th percentile TTM and 27th percentile ITD.
• Within Developed Markets, the Pacific region saw the largest allocation of 15%. This was driven by Japan, whose 18% allocation landed in the 90th percentile over the trailing twelve months. Spain’s 2% allocation was particularly high for the country, landing in the 92nd percentile TTM. Canada also stood out with a -5% allocation the landed in just the 2nd percentile TTM.
• Asia continued to drive most of the short exposure in Emerging Markets., with a -12% allocation that placed in the 37th percentile TTM. India was again the main driver with a -15% allocation of its own. The Europe, Middle East & Africa region also saw historical lows, with a -5% allocation that placed below the 30th percentile both TTM and ITD.

Regards,

Jose