Inflation Reports Cause Whipsaw Effect in US Markets

Market Summary

US Market: 2/7/2025 - 2/13/2025

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• Major US stock indices saw mixed performance this week. The Nasdaq saw a slight gain drop at 0.23%, while the S&P 500 and the Dow Jones were down -0.18% and -1.07% respectively.
• Wednesday’s Consumer Price Index report showed that price growth rapidly sped up in January, with core inflation rising 3.3% year-over-year, versus economists’ expectations of 3.2%. The hotter-than-expected report marked the highest increase in nearly 1.5 years. Markets tumbled Wednesday following the news, with the Dow falling 400 points at the start of trading and US Treasury yields rising.
• The Producer Price Index report that followed on Thursday showed an increase of 0.4% in January, up 3.5% year-over-year. Though wholesale prices rose more than expected, costs dropped in certain areas like healthcare and domestic airfares - important components of the Fed’s preferred PCE measure. US Treasury yields reversed their Wednesday spike following the news.

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

• The US Extreme Movers portfolio delivered a return of 21.2% this week, which is in the Very Volatile range. This performance ranks in the 90th percentile for the trailing-twelve-months and since the portfolio's inception.
• Factors contributed 8.8% of the total return. This level of factor performance is in just the 6th percentile for the trailing twelve months and the 5th percentile since the portfolio’s inception, classifying the week as Very Alpha-Driven.
• Weeks that are both Very Volatile and Very Alpha-Driven provide rich opportunities for fundamental investors, as there is an abundance of return that is not being driven by systematic market factors.

International Extreme Movers Volatility and Factor-Driven Speedometers

• The International Extreme Movers Portfolio posted a 18.9% return this week. This return ranks in the 90th percentile for the trailing-twelve-months and the 83rd percentile since the portfolio’s inception, earning a classification of Very Volatile.
• Factors accounted for 32.1% of the total return, which falls in the 76th percentile over the trailing twelve months and the 70th percentile since inception. This designates the week as Factor-Driven.

US Extreme Movers Portfolio Exposures

• Communication Services, Consumer Staples, and Industrials all led the US Portfolio this week with a 7% allocation. This allocation was in the top quartile over the trailing twelve months and since inception for all three sectors.
• The Entertainment industry (4%) drove the positive exposure within Communication Services, while Food Products (4%) drove Consumer Staples, and the Electrical Equipment and Ground Transportation industries each drove Industrials exposure at 3%.
• Health Care held the lowest allocation in the portfolio at -24%, which is in the 6th percentile TTM and 3rd percentile ITD for the sector. This decline in exposure was mainly due to Life Sciences Tools & Services, which represented half of the sector’s short exposure.

• Value factors were moderately in favor this week. All factors had positive exposure in the portfolio, and Dividend Yield placed above the 60th percentile both TTM and ITD across all three models. This exposure was overwhelmingly driven by short Health Care positions indicating that investors were inclined to short names with low value exposure in the sector.
• Beta and Volatility factors were down this week as each factor held negative exposure in the portfolio. Volatilty was especially out of favor as Axioma’s factor placed in the 24th percentile over the past year and 30th since inception, and Wolfe’s Volatility was in just the 13th percentile over the trailing twelve months and 18th since inception. Both were driven by the short book, the Health Care sector in particular for Axioma, suggesting that investors were shorting stocks with high exposure to Volatility.
• Within Quality, Profitability was noticeably in favor this week with the factor placing in the top quintile over the trailing twelve months for both Wolfe and Axioma. Each factor’s main exposure contributor was shorts in the Health Care sector indicating that shorts on Health Care names with low exposure to Profitability were popular.

International Extreme Movers Portfolio Exposures

• Information Technology was the top allocation for the international portfolio this week, the sector increased from a 2% allocation last week to 9% this week. This move places the sector in the 81st percentile for the trailing twelve months and 82nd since inception. Within the sector, Electronic Equipment, Instruments & Components was the most heavily represented industry, contributing 4.6% on its own.
• Financials was again the second most represented sector, with an 8% allocation this week. This placed the sector in the 66th percentile over the past year and 71st since the portfolio’s inception. Banks alone accounted for almost 7% of the exposure in the portfolio.
• Utilities was the least represented sector this week, with a -6% allocation. This is in just the 8th percentile for the trailing twelve months and the 12th percentile since inception. Electric Utilities and Independent Power and Renewable Electricity Producers had the lowest industry allocations within the sector, each at -2.3%.

• Beta and Volatility factors were in favor this week as international investors showed a greater appetite for risk. The Market Sensitivity factor placed in the 94th percentile over the trailing twelve months and the 79th since inception. The long book drove most of this positive exposure, suggesting that investors were moving into high Beta names.
• Growth stocks were also in favor this week as both factors ranked in the top quartile over the past year. Long positions were the primary contributor indicating that investors were buying high-growth stocks.
• Value factors were relatively muted despite ticking up week-over-week. Most factors hovered around their historical mean allocations, but Axioma’s Value factor earned an exposure of .27, which placed in the 73rd percentile TTM and 79th ITD. On the low end, Barra’s Dividend Yield had an exposure of -.10, which was in the 31st percentile TTM and 41st ITD.

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.

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• Emerging Markets were favored this week with a 5% allocation, placing in the 61st percentile over the trailing twelve months and the 54th percentile since the portfolio’s inception. Developed Markets had a -4% allocation, landing in the 33rd percentile for the trailing twelve months and the 38th percentile since inception.
• Within Emerging Markets, both the Americas and Europe, Middle East & Africa led with a 6% allocation. Mexico was the biggest driver in the Americas at 6% which was in the 98th percentile TTM and ITD, while Poland was the biggest driver in EMEA at 5%, its highest allocation over the past year.
• Within Developed Markets, the Pacific was the only region with a negative allocation (-5%). This was driven by Japan at -10% which was in the bottom quartile for the country over the past twelve months.

Regards,

Colin