ECB Cuts, Powell Cautions, Nvidia Stumbles

Market Summary

US Market: 4/11/2025 - 4/17/2025

• On April 17, the European Central Bank (ECB) reduced its key interest rates by 25 basis points, lowering the deposit facility rate to 2.25%. This marks the seventh consecutive rate cut since June 2024, as the ECB responds to slowing growth and inflation nearing its 2% target. The decision reflects concerns over the eurozone's economic outlook, influenced by recent U.S. tariffs on EU imports that have dampened business confidence and tightened financial conditions.
• In an April 16 speech at the Economic Club of Chicago, Federal Reserve Chair Jerome Powell acknowledged that the U.S. economy and labor market remain solid but cautioned about the uncertainties posed by recent tariff policies. He emphasized that the Fed remains in a "wait-and-see" mode, noting that a surge in imports ahead of tariff implementations may slow first-quarter GDP growth.
• Nvidia announced it expects a $5.5 billion charge in the first quarter after the U.S. government imposed new restrictions on exporting its H20 AI chips to China. The H20 chips, designed to comply with previous export controls, are now subject to licensing requirements that have historically been denied, effectively halting sales to a significant market. In response, Nvidia's stock fell nearly 7%, contributing to a broader decline in tech stocks amid escalating U.S.-China trade tensions.

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 US Extreme Movers portfolio saw a 18.2% return this week, ranking in the 43rd percentile for the trailing twelve months (TTM) and the 63rd percentile since inception. This level of performance marks the week as being “Very Volatile”. The divergence in the TTM and since-inception percentiles indicates the elevated levels of volatility the market has seen in the past year.
• Factors accounted for 46.5% of the total return, placing the portfolio in the “Very Factor-Driven” category. This ranks in the 78th percentile for the trailing twelve months and the 65th percentile since inception. Industry factors drove two thirds of the total factor return.

International Extreme Movers Volatility and Factor-Driven Speedometers

• The International Extreme Movers portfolio earned a 22.9% return, placing it in the "Very Volatile" category as well for the week. This return ranks in the 63rd percentile over the trailing twelve months and the 67th since inception.
• Factors accounted for 46.7% of the total return, which classifies as “Very Factor-Driven". This level of factor return is in the 80th percentile for the portfolio over the trailing twelve months and the 75th since inception. Country and Industry factors drove almost 80% of the total factor return.

US Extreme Movers Portfolio Exposures

• The Utilities sector held the largest allocation in the U.S. portfolio this week at 21%, ranking it in the 1st percentile on a trailing twelve-month basis and in the 99th percentile since the portfolio’s inception. Within the sector, the Electric Utilities and Gas Utilities industries were the primary contributors, accounting for 11% and 4% of the allocation, respectively.
• The Real Estate sector saw a significant shift, rising from a -5% allocation last week to 12% this week. This move placed the sector in the 89th percentile on a trailing twelve-month basis and the 91st percentile since the portfolio’s inception. Specialized REITs emerged as the most represented industry within the sector, accounting for a 5% allocation.
• In contrast, the Consumer Discretionary sector was the least represented this week, with a -27% allocation. This positioned the sector in the 1st percentile over the trailing twelve months and the 2nd percentile since the portfolio’s inception. All industries within the sector, except Diversified Consumer Services, contributed to the negative allocation.

• Beta and volatility factors were out of favor this week. Wolfe’s volatility factor was particularly weak, with a -2.22 exposure—placing it in the 1st percentile for both the trailing twelve months and since the portfolio’s inception. Both the long and short books contributed equally to this negative exposure. Barra’s Beta factor also underperformed, ranking in the 3rd percentile on a trailing twelve-month basis and 1st percentile since inception.
• On the other hand, most value factors were favored this week. Barra’s Dividend Yield ranked in the 87th percentile on a trailing twelve-month basis, driven primarily by long positions in the Utilities and Real Estate sectors. Additionally, Barra’s Earnings Yield also performed well, landing in the 79th percentile over the same period, with the short book serving as the main driver of this exposure.
• Quality factors also ranked well this week. Earnings Quality showed a strong exposure of 0.58, with the entire contribution coming from the short book, particularly from positions in the Consumer Discretionary and Information Technology sectors.

International Extreme Movers Portfolio Exposures

• Financials emerged as the most represented sector this week, with a 12% allocation. This placed the sector in the 81st percentile on a trailing twelve-month basis and the 82nd percentile since the portfolio’s inception. Within the sector, Banks were the most prominent industry, accounting for a 9% allocation.
• Information Technology ranked as the second most represented sector this week, with an 11% allocation. This placed the sector in the 90th percentile since the portfolio’s inception. Within the sector, Technology Hardware, Storage & Peripherals was the top contributing industry, accounting for 6% of the allocation.
• Consumer Staples experienced a significant shift this week, moving from a 24% allocation last week to -9%. This placed the sector in the 8th percentile over the trailing twelve months and the 7th percentile since the portfolio’s inception. All industries within the sector contributed to the negative allocation, except for Consumer Staples Distribution & Retail.

• Quality factors were out of favor this week. Barra’s profitability ranked in the 4th percentile for the trailing twelve months and the 7th percentile since the portfolio’s inception. The short book was the primary contributor to this negative exposure, indicating that investor bet against names with high exposure to the profitability factor.
• Beta and Volatility factors were mixed this week. Axioma’s Market Sensitivity had a strong exposure, ranking in the 92nd percentile on a trailing twelve-month basis, with the Industrials long allocation being the primary contributor. In contrast, Barra’s Residual Volatility ranked low, placing in the 5th percentile since the portfolio’s inception. The short book was the main driver of this negative exposure, while the long book contributed positively, though to a lesser extent.
• Crowding factors were also out of favor this week, with both factors landing near the 30th percentile since inception. The short book of the portfolio was the primary driver of this negative exposure to the crowding factors.

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 this week, with a 25% allocation, placing the region in the 78th percentile for the trailing twelve months and the 80th percentile since the portfolio’s inception. In contrast, Emerging Markets had a -22% allocation, which placed them in the 16th percentile for both the trailing twelve months and since inception.
• Within Developed Markets, Europe and the Middle East were the most represented regions, with a 31% allocation. The UK was the most represented country, accounting for 9% of the allocation.
• In Emerging Markets, Europe, the Middle East, and Africa were the least represented region, with a -17% allocation. China was the most significant contributor, accounting for -52% of the allocation, placing the country in the 2nd percentile for the trailing twelve months and the 1st percentile since inception.

Regards,

Jose