Stocks Head For A Third Week of Gains on Positive Inflation News

Market Summary

US Market: 11/3/2023 - 11/9/2023

• The US Market Indices were up across the board this week, following last week’s mixed positive results. The Nasdaq led the way with a return of 4.2% for the five trading days ending 11/16. The S&P 500 followed closely with a return of 3.7%, while the Dow Jones came in lowest at 3.1%.
• Stocks saw an impressive mid-week rally with the release of October CPI and labor market data that showed cooling inflation, with annual inflation in October coming in at 3.2% (below the forecasted rate of 3.3%). The data spurred confidence that the Fed could ease back on interest rate hikes and remain on track for cuts in 2024.
• Oil is headed for a fourth straight week of losses, with crude prices down more than 20% from their high in September. The slump has investors worried about the global demand outlook, with economic data from both China and the US pointing to a slowdown in crude consumption. From a supply perspective, OPEC has predicted tightness in the fourth quarter, while the US has seen a sharp increase in stockpiles.

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 returned 15.7% this week, landing in the 51st percentile TTM and the 72nd percentile since inception. This week was classified as “Volatile”.
• Factors contributed to 29.4% of the portfolio's volatility. This level of factor contribution stands at the 73rd percentile TTM and classifies as “Factor-Driven”. Style accounted for over 60% of the total factor volatility.
• Interestingly, the return of the Market Intercept in the Axioma US risk model remained quite elevated this week, at 2.99%. The return placed in the 92nd percentile when compared to all weeks since November 2020.

International Extreme Movers Volatility and Factor-Driven Speedometers

• The International Extreme Movers Portfolio returned of 15.2% this week, placing it in the 59th percentile TTM and the 55th percentile ITD. This week's performance classified as “Neutral".
• Factors accounted for 26.1% of this week’s volatility, making this a “Neutral” week for factor return as well. This level of factor contribution places in the 47th percentile TTM, with 75% of the factor return was driven equally by Style, Country, and Currency factors.
• Echoing the US market, we also saw a very strong return for the Market Intercept factor within the Axioma Worldwide risk model this week, coming in at 2.91%. This market return ranked at the 97th percentile in the past 3 years.

US Extreme Movers Portfolio Exposures

• Information Technology held its spot as the largest sector long allocation this week. Semiconductors & Semiconductor Equipment accounted for 9% while Software followed at 4%.
• Consumer Discretionary nearly reached its top decile of allocation on both a trailing-twelve-month and inception-to-date basis. Industry contributions were consistently positive across the entirety of the sector.
• Biotech, Pharmaceuticals, and Health Care Providers & Services amounted to a combined 23% short allocation. The rest of the Health Care industries were moderate long allocations which brought Health Care to its 5th percentile on a trailing-twelve-month basis.
• Following a very neutral week, Insurance made up 11% of this week’s 15% short allocation to Financials. Capital Markets followed at a 5% short.

• The US Portfolio reached significant levels of beta and residual volatility exposures this week. All beta factors landed in the top decile since inception and every GICS sector contributed positively to beta exposures.
• Barra’s Growth factor notched its 93rd percentile on a trailing-twelve-month basis as growth factors were favored over value factors. Earnings Yield was particularly out of favor, led by the short allocation to Health Care and the long allocation to Information Technology.
• The 1.01 exposure to Wolfe’s Short Interest factor landed in the 97th percentile since inception. The exposure was driven by long stocks which indicates that popular hedge fund shorts saw significant rallies relative to unpopular shorts this week.

International Extreme Movers Portfolio Exposures

• Sector allocations in the International portfolio were much more muted. The most significant allocation was a 10% short in Consumer Staples led by Food, Beverages, & Tobacco.
• Unlike in the US portfolio, all international Health Care industries fell in short territory this week. Pharmaceuticals and Biotech stocks in China accounted for much of the 8% short allocation.
• Swedish Industrials companies accounted for an 8% long allocation. More than half of that 8% was made up of Machinery stocks.

• Beta factors remained extremely elevated internationally while residual volatility factors fell heavily out of favor. Barra’s Residual Volatility factor fell to an exposure of -0.55 which landed in just the 6th percentile since inception.
• Growth and value factors, on the other hand, became much more muted with the exception of Axioma’s Dividend Yield factor which reached its 79th percentile on a trailing-twelve-month basis.
• Earnings Quality and Investment Quality both fell in the bottom twelve month quartile which was driven largely by the short allocation to Communication Services stocks.
• Although the exposures moved closer to zero, the underexposures to Oil Beta and Interest Rate Beta were driven by the long book which indicates that investors were buying stocks with lower sensitivity or even inverse relationships to interest rates and oil prices amid slowing inflation.

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.

• Developed Markets returned to the long book in a big way with a 37% allocation. That allocation marks the 98th percentile on a trailing-twelve-month basis.
• Developed Europe led the charge as Swedish Industrials stocks and German Consumer Discretionary stocks saw strong rallies.
• Emerging Asia was hit hard this week. China accounted for an 18% short allocation which was driven heavily by Health Care and Financials stocks.

Regards,
David