Earnings Reports and Employment Data Fuel Volatility

US Market: 10/25/2024 - 10/31/2024

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• U.S. headline indices posted loses this week. The S&P 500 was the biggest loser with a weekly performance of -1.80%. It was closely followed by the Nasdaq at -1.74% and lastly by the Dow at -1.44%.
• U.S. payrolls increased by only 12,000 in October, falling short of expectations. Economists point to disruptions from hurricanes Helene and Milton, as well as a Boeing strike, as key factors that temporarily sidelined many workers. Despite this slow growth, the unemployment rate remained stable at 4.1%, indicating that the job market continues to be strong.
• Several tech giants reported earnings this week, causing varied market reactions. Microsoft’s stock declined 3.5% after posting slower growth in cloud revenue. Meta also faced a downturn, with its substantial AI spending and eBay's lower-than-expected sales contributing to a 10% drop. Apple issued a cautious forecast for holiday season sales, leading to a dip. Meanwhile, Amazon saw gains as its strong performance in cloud computing and online retail fueled a notable rally.
• On the international front, escalating tensions between Iran and Israel have driven oil prices higher, with reports suggesting that Iran may be preparing an attack on Israel, raising concerns over potential disruptions to oil supplies.

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 19.2% this week, placing it in the 85th percentile over the past twelve months and since inception. This level of performance marks the week as "Very Volatile."
• Factors accounted for 12.9% of the total returns this week, landing in the 10th percentile for trailing twelve months and 13th percentile since the portfolio’s inception. This level of factor return puts this week in the “Very Alpha-Driven” category.
• Markets that are both very volatile and very alpha-driven can provide great opportunities for fundamental managers, as there are strong returns that are driven by stock-specific moves, rather than systematic market-forces.

International Extreme Movers Volatility and Factor-Driven Speedometers

• The International Extreme Movers portfolio achieved a return of 14.3% this week, ranking in the 41st percentile since its inception and the 15th percentile over the past twelve months. This performance classifies the week as “Neutral.”
• Factor returns accounted for 19.3% to the portfolio's total performance, categorizing it as Very Alpha-Driven. This level of factor return places the week in the 23rd percentile over the past twelve months and the 17th percentile since inception.

US Extreme Movers Portfolio Exposures

• Tech rose to the top of the portfolio this week, with a 9% allocation that reached the 60th percentile over the trailing twelve months. Software drove the sector, contributing 10%, while IT Services and Semiconductors were negative at -2% and -1% respectively.
• On the flip side, Consumer Staples dropped to the least represented sector at -8%. This ranks in the 17th percentile over the trailing twelve months and the 11th percentile since inception. Beverages alone drove half of this allocation, though all industries had negative contributions.
• Consumer Discretionary returned to a positive allocation following last week’s sharp decline, reaching a 3% allocation that placed in the 68th percentile over the trailing-twelve months. Hotels, Restaurants & Leisure drove 6% of this allocation, while industries like Specialty Retail and Automobiles remained short.

• Beta and Volatility factors were back in favor this week, reaching above the 70th percentile across all models over the trailing-twelve month period. This was driven by the long book, as investors shifted toward a risk-on stance and leaned into higher-beta higher-vol names.
• Growth was also in favor, while Value was largely out, with the exception of Wolfe’s Earnings Yield factor. The positive Growth exposure stemmed from the short book, as investors sold low-growth names, particularly in Health Care, Industrials, and Consumer Discretionary.
• Interest Rates Beta was up, reaching the 74th percentile on a trailing twelve-month basis. Almost half of this exposure was driven by long Consumer Discretionary names, followed by short Utilities and Real Estate.
• HF Crowding was slightly positive this week, as investors favored popular longs particularly in Tech and Materials. Short Interest was also positive, reaching the 76th percentile TTM, as investors bought popular shorts in Consumer Discretionary and Industrials.

International Extreme Movers Portfolio Exposures

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• Financials emerged as the most represented sector in the international portfolio, with a 4% allocation. This positioned the sector in the 49th percentile over the trailing-twelve months and the 60th percentile since inception. Banks were the main driver, at 6%, followed by Capital Markets at 2%, while other industries had negative contributions.
• Energy dropped to the bottom of the portfolio at -5%, placing it in the 14th percentile over the trailing-twelve months. Oil, Gas & Consumable fuels drove almost all of this allocation, while Energy Equipment & Services was slightly positive with a 0.6% allocation.
• Real Estate experienced a significant shift this week, swinging from a -9% position last week to a 2% allocation that placed it in the 61st percentile since inception. The recovery came as the ‘Real Estate Management & Development industry’ bounced back from last week’s lows, accounting for almost the entire sector allocation.

• Beta factors were up in the International Portfolio, while Residual Volatility was down. The positive Beta positioning came from the long book, as investors preferred long positions in stocks with higher beta. The volatility positioning was driven more by the short book, as investors shorted more higher-volatility names than they bought.
• Similar to the US portfolio, Growth was in favor while Value factors were out this week. Barra’s Growth factor was particularly strong, ranking in the 93rd percentile for the trailing-twelve months, driven primarily by longs in Tech, Industrials, and Consumer Discretionary.
• Interest Rate Beta was up, as investors leaned into names that benefit from rising rates, particularly in Financials and Consumer Discretionary. Oil Beta was slightly out of favor, driven by this week’s short positioning to Energy along with Consumer Staples and Consumer Discretionary.

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 favored this week, with a 28% allocation that placed in the 83rd percentile for trailing-twelve months and the 84th percentile since inception. In contrast, Emerging Markets experienced a -28% allocation, placing it in the 10th percentile for the trailing-twelve months and the 11th percentile since inception.
• Within Emerging Markets, Asia drove the short positioning, accounting for -39% of the allocation. China was the reason for this, swinging from last week’s hugely positive allocation, to a -21% position that ranked in the 12th percentile since the portfolio's inception.
• In Developed Markets, the Pacific region was the most significant, driven by Japan’s 24% long allocation. This placed in the 93rd percentile over the trailing-twelve months. Within the Europe & Middle East Region, Israel and Norway also saw notably high allocations, with both reaching above the 95th percentile on a trailing-twelve-month basis.

Regards,

Jose