Markets See Mixed Start to 2025 as Nasdaq Rallies, S&P Declines

Market Summary

US Market: 12/27/2024 - 1/2/2025

• The Nasdaq surged 3.19% this week, while the Dow Jones edged up 0.35%. In contrast, the S&P 500 dropped 2.29%, and posted its fifth consecutive daily decline as of January 2nd—it’s longest such stretch since April.
• Despite having a down week, the S&P closed 2024 up 23%. This marks the first time since 1998 that the S&P has posted consecutive annual gains of over 20%.
• President Biden blocked the $14.1 Billion sale of US Steel to Japan’s Nippon Steel Corp. By electing to keep US Steel domestically owned, the president ended what had been months of vocal opposition to the deal. US Steel shares immediately fell in pre-market 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

• The US Extreme Movers portfolio delivered a 7.5% return this week, placing it in the lowest percentile for the trailing twelve months and just the 5th percentile since inception. This performance registers as “Very Calm” for the week.
• Factors contributed 53.8% to the total return, placing it in the 100th percentile for the trailing twelve months and the 97th since inception. This factor return is classified as “Very-Factor-Driven.”

International Extreme Movers Volatility and Factor-Driven Speedometers

• The International Extreme Movers portfolio posted a 9.4% return last week, earning a “Very Calm” classification. This performance ranks in the lowest percentile for the trailing twelve months and the 3rd percentile since inception.
• Factors contributed 26% to the total return, ranking in the 55th percentile for the trailing twelve months and the 45th percentile since inception. This level of factor return qualifies as “Neutral.”

US Extreme Movers Portfolio Exposures

• Energy Surged this week as the most represented sector in the US portfolio with a 27% allocation which placed it in the top rank for trailing twelve months and 93rd percentile since inception. ‘Oil, Gas & Consumable Fuels’ was the industry with the highest representation at 23.94%.
• Healthcare ranked as the second most represented sector in the U.S. portfolio this week, with a 6% allocation. This positioned it in the 77th percentile for the trailing twelve months and the 66th percentile since the portfolio's inception. The sector was primarily driven by the 'Health Care Providers & Services' and 'Pharmaceuticals' industries, which held the highest representation within the sector.
• Information Technology was the weakest sector in the U.S. portfolio this week, with a -43% allocation. This placed it at the lowest rank for the trailing twelve months and in the 1st percentile since the portfolio's inception. All industries within the sector contributed to this negative allocation, with 'Software' and 'Semiconductors & Semiconductor Equipment' having the most significant impact, collectively accounting for over two-thirds of the total exposure.

• Value factors showed notable strength this week, with dividend yield securing the top rank across all three models. Both the long and short books of the portfolio contributed to this positive allocation, driven primarily by the long exposure to the energy sector and the short exposure to information technology. Earnings yield also performed well, ranking in the top decile across the three models on a trailing twelve-month (TTM) basis. While both the long and short books contributed, the short book played a more significant role in this allocation.
• Beta and volatility factors fell out of favor this week. Axioma’s market sensitivity ranked in the lowest percentile for the trailing twelve months. Both the long and short books of the portfolio contributed to this negative exposure, with the short book having a greater impact.
• Growth factors also underperformed this week, with Growth metrics from both Wolfe and Axioma ranking in the lowest decile of the data. The Information Technology and Financials sectors were the primary contributors to this negative allocation.

International Extreme Movers Portfolio Exposures

• Similar to the U.S. portfolio, Energy ranked as the top sector this week for the International Extreme Movers Portfolio, with a 7% allocation. This placed the sector in the 96th percentile for the trailing twelve months and the 81st percentile since inception. The ‘Oil, Gas & Consumable Fuels’ industry was the most significant within the sector, accounting for 6.3% of the total allocation on its own.
• Industrials was the second most represented sector this week, with a 5% allocation. This level of exposure ranks the sector in the 66th percentile for the trailing twelve months and the 75th percentile since inception. The ‘Trading Companies & Distributors’ and ‘Machinery’ industries were the most represented within the sector.
• Real Estate was the weakest sector this week, with a -5% allocation, placing it in the 20th percentile for the trailing twelve months and the 18th percentile since the portfolio’s inception. All industries within the sector had negative allocations, with ‘Real Estate Management & Development’ being the most significant contributor to the decline.

• Value factors were in favor this week, particularly the Earnings Yield factor, which ranked in the top quintile of the data for both Axioma and Barra. Barra’s Earnings Yield placed in the 91st percentile for the trailing twelve months and the 91st percentile since inception. Both the long and short books of the portfolio contributed to this positive exposure.
• Macro factors were also favorable this week, particularly ‘Interest Rate Beta’, which ranked in the 95th percentile for the trailing twelve months. The short allocation to Materials and the long allocation to Industrials were the primary contributors to this positive exposure.
• Beta and Volatility factors were out of favor this week, with Barra’s Residual Volatility ranking in the 6th percentile for the trailing twelve months and the 7th percentile since inception. The short book of the portfolio drove the negative exposure, while the long book contributed positively, but to a lesser extent.

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 33% allocation, placing it in the 90th percentile for the trailing twelve months and the 89th percentile since inception. In contrast, Emerging Markets saw a -31% allocation, positioning the region in the 7th percentile for inception to date and the 8th percentile since inception.
• Within Developed Markets, the Pacific was the most represented region with a 21% allocation. Japan held the largest representation within the Pacific, with an allocation of 26%. Europe and the Middle East also made significant contributions, accounting for 12% of the total allocation.
• For Emerging Markets, Asia was the key driver of the negative allocation, with the Republic of Korea being the most significant country within the region. Korea alone contributed -22% to the overall allocation.

Regards,

Colin