Markets Rally Following US Presidential Inauguration
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Markets Rally Following US Presidential Inauguration

Government
Written by
Reshma Rajagopalan, CFA
Post On
Jan 26, 2025

Market Summary

US Market: 1/17/2025 - 1/23/2025

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  • US market indices were up across the board this week, with the Nasdaq in the lead at 2.13%. The Dow Jones was not far behind at 1.98%, while the S&P 500 followed at 1.86%.
  • Asian markets rallied this week after US President Trump made dovish remarks on whether he plans to impose tariffs on China. The yuan also extended gains, while the dollar weakened.
  • US stocks have also seen an extended rally, with the S&P 500 notching a record high close at the end of trading Thursday. The rally was driven by a mix of corporate earnings and comments from the US president around cuts in interest rates and oil prices.
  • The Bank of Japan increased its key policy rate by a quarter-point to 0.5% - the highest level seen since 2008. The move was widely expected by markets, and signals a more bullish view on the strength of Japanese inflation, and the expectation for more rate hikes.

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 returned 13.8% this week, placing it in the 39th percentile for the trailing twelve months and the 58th percentile since inception. This performance classifies as “Neutral”.
  • Factors contributed 24.2% to the total return, placing it in the 57th percentile for the trailing twelve months and the 50th since inception. This level of factor return also classifies as “Neutral”, and was almost equally split between Style & Industry factors.

International Extreme Movers Volatility and Factor-Driven Speedometers

  • The International Extreme Movers portfolio posted a 14.6% return this week, earning a “Neutral” classification. This performance ranks in the 25th percentile for the trailing twelve months and the 46th percentile since inception.
  • Factors contributed 27.7% to the total return, placing the week in the 63rd percentile for the trailing twelve months and the 53rd percentile since inception. This level of factor return classifies as “Neutral.”

US Extreme Movers Portfolio Exposures

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  • Tech was the story this week as exposure to Information Technology in the portfolio surged to 30%. This placed in the 90th percentile over the past year, and the 95th since inception. Software was the industry most responsible for the increase in exposure, making up 1/3 of the sector’s allocation.
  • Industrials had the second largest long allocation in the portfolio at 15% which placed in the 94th percentile over the trailing twelve months and since inception. Electrical Equipment (6%) and Construction & Engineering (5%) were the largest industry allocations within Industrials.
  • Energy exposure fell significantly in the portfolio as it went from the second largest long last week to the largest short this week at -14%. This places in just the 7th percentile TTM for the sector and this decrease was mainly due to a 13% short on Oil, Gas & Consumable Fuels names in the portfolio.
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  • It was a risk-on week for US investors as both Beta and Volatility were heavily in favor this week. Wolfe’s Volatility, Axioma’s Market Sensitivity and Barra’s Beta all ranked in the top quintile over the trailing twelve months and since inception. This uptick was driven by Long IT names across the board.
  • Value significantly lost favor with US investors week-over-week. Dividend Yield for Barra and Axioma, and Earnings Yield for all three models, registered in the bottom decile over the past 12 months. Long exposure to Health Care and Short Exposure to Energy were the primary drivers of the move away from Value in the portfolio.
  • Crowding factors exhibited significant dispersion this week. HF Crowding rose sharply from the previous week, reaching the 85th percentile on a trailing twelve-month basis. In contrast, ETF Flow dropped into the bottom decile for both TTM and ITD, while Short Interest fell to the bottom quintile over the same periods. Unsurprisingly, the increase in crowding was primarily driven by consensus Tech longs.

International Extreme Movers Portfolio Exposures

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  • Like the US portfolio, the International Extreme Movers portfolio allocated the heaviest to Information Technology (17%) this week. This was a historically high allocation, placing in the 95th percentile over the past year and 97th since inception. The increased exposure was driven primarily by Electronic Equipment, Instruments & Components (7%) and Semiconductors & Semiconductor Equipment (6%).
  • Industrials was the second largest allocation in the International portfolio at 11%. This was in the top decile for Industrials both TTM and ITD. Industry exposure within the sector was balanced, with Aerospace & Defense and Electrical Equipment receiving the highest allocations at 4% each.
  • Energy was the largest short in the International portfolio this week at -10%, placing in just the 2nd percentile over the trailing twelve months and 11th since inception. Short exposure to Oil, Gas & Consumable Fuels (-9%) explained the majority of the sector’s negative exposure.
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  • Value was decidedly out of favor this week as nearly every measure was in the bottom decile over the trailing twelve months, and Axioma’s Earnings Yield was not much better in the 14th percentile. This move away from Value was driven primarily by the long book, chiefly by long Industrial names and by long IT names to a lesser degree.
  • The overall appetite for risk was mixed amongst international investors, but Barra’s Beta and Axioma’s Market Sensitivity factors stood out as each registered their highest allocation in the portfolio over the past twelve months. An increased desire for long IT stocks was the shared driver between the two factors.
  • Earnings Quality stood out as placing in the 7th percentile over the last year and 15th percentile since inception, this was driven by the short book, Energy shorts in particular.
  • HF Crowding placed similarly, ranking in the 7th percentile TTM and the 14th percentile ITD. Long Tech names spurred this dip as international investors moved away from crowded names in the sector.

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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  • Developed Markets were in favor again this week, with a 25% allocation that reached the top quintile both TTM and ITD. Emerging Markets had a -24% allocation which placed in the bottom quintile TTM and ITD.
  • Within Developed Markets, Europe & Middle East was the heaviest allocated region at 22%, which is the 95th percentile over the trailing twelve months. Germany, France and Sweden all garnered allocations that placed in their respective top decile over the past year and top quintile historically.
  • Asia drove most of the short exposure to Emerging Markets. The -25% allocation was in the 10th percentile TTM and the 12th ITD. India stood out with a -25% allocation of its own, which was in the 7th percentile over the past year and just the 1st percentile for the country since the portfolio’s inception.

Regards,

Reshma

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