Markets Slip on Mixed Labor News

Market Summary

US Market: 6/30/2023 - 7/6/2023

• US Markets ended near zero after a dip in performance on Thursday resulted in a one-week return of 0.01%. The US headline indices were mixed, with the Nasdaq finishing the week at 0.63% and the S&P 500 at 0.33%. This Dow fell into negative territory ending at -0.61%.
• Thursday’s hefty dip followed the release of hawkish minutes released from the Fed’s June meeting as well as ADP Employment Change and US Jobless Claims data, which showed job growth slowing more than expected compared to the prior month’s surge.
• Despite this, the June Job’s Report released Friday reported that wage gains continued and the unemployment rate fell to 3.6%. The mixed labor market news has analysts expecting the Fed to raise interest rates to the 5.25%-5.5% range this month.

Extreme Movers Portfolio Performance

Note: Extreme Movers definitions can be found in Factor University on our website.

US Extreme Movers Volatility and Factor-Driven Speedometers

• The US Extreme Movers portfolio returns were lower this week, posting a 9.9% return over the week. This places it in the first decile since inception, categorizing the week as “Calm” in terms of volatility.
• Factor return contribution was also lower this week, decreasing three percent to 20.3%. This represents the 15th percentile since inception, which categorizes this week as the first “Alpha-Driven” week since mid-May.

International Extreme Movers Volatility and Factor-Driven Speedometers

• The International Extreme Movers portfolio was up slightly from the week prior with a 13.3% return, which classifies this week as “Calm”.
• Factor return contribution moved into “Very Alpha-Driven” territory this week, with factors accounting for only 20% of the portfolio's return. This ranks in the first quintile since 2007.

US Extreme Movers Portfolio Exposures

• This week's US markets show a booming Real Estate sector and a crashing Information Technology sector. Financials, which had been the biggest loser last week, rebounded with a long allocation of 6%.
• Real Estate's increase was led by Office REITS. In general, all industries within Real Estate but for Real Estate Management & Development saw positive allocation.
• Almost two-thirds of the Information Technology’s short allocation was attributed to Software, at -9.6%, followed by Semiconductors and IT Services, at -4.6% and -1.9% respectively.
• Utilities, led by Electric Utilities, landed in the top decile TTM. Meanwhile, Health Care, led by Health Care Equipment & Supplies, landed almost in the bottom decile.

• Beta and Volatility reverted back from last week’s strong positive exposure to a slight negative exposure, as almost all Beta and Volatility factors landed in the middle quintile TTM.
• The portfolio saw negative exposures to growth, landing in the bottom quintile of both TTM and ITD. The negative exposure came from both sides of the book, suggesting investors were in favor of anti-growth names and against growth-behaving ones.
• Interest Rate Beta exposure came exclusively from the short side of the book. This suggests that investors were against stocks with a negative relationship to rising Interest Rates.
• The negative exposure from HF Crowding also came from the short book, implying that investors avoided popular longs over the week.

International Extreme Movers Portfolio Exposures

• Energy, which had a neutral allocation in the US portfolio, was the biggest winner this week, landing in the top decile TTM, and in the top quintile ITD. The allocation was led exclusively by the Oil, Gas & Consumable Fuels sector.
• Communication Services saw one of the most negative allocations since we started to collect data in 2007. All Industries, led by Entertainment, were drivers of this short allocation.
• Information Technology rebounded from last week’s -8% allocation, landing in the 67th percentile TTM. Hardware-related industries led this long allocation, with Software being the only industry within Information Technology in the short book, at -1.62%.

• This week’s International Portfolio continued to see a positive exposure to Value, led exclusively by the long book. However, unlike last week’s portfolio, it also saw a strong positive exposure to Growth, coming from both sides of the book. This suggests that investors favored growth-behaving names and fled away from anti-growth ones.
• The long exposure to HF Crowding came from both sides of the book, while the long exposure to Short Interest came only from the long side of the book. The former suggests that investors preferred long crowded names and steered away from unpopular longs, while the latter suggests that investors favored unpopular shorts for their long book.

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.

• Emerging Markets saw a strong positive allocation, which located it in the top quartile on a TTM and ITD basis. This allocation was led by EM Americas — mostly Brazil — and EM Asia. Thailand was the nation that deviated the most from its historical mean, having its largest long allocation in the past twelve months and one of the largest since inception.
• Within Developed Markets, Europe & Middle East were responsible for most of the short representation. Sweden led the race at -3%, but in general, most nations within the region contributed to this negative allocation.

Regards,
David