Tech Leads Gains as Gold Reaches Record Highs Amid Rate-Cut Speculation

Market Summary

US Market: 9/6/2024 - 9/12/2024

• US headline indices posted gains this week, with the Nasdaq leading at 2.58%, followed by the S&P 500 at 1.68%, and the Dow with a modest gain of 0.84%.
• With mixed economic data, investors continue to debate the size of next week’s anticipated interest rate cut, as U.S. producer prices and unemployment applications both rose. As a result, Treasury yields climbed, the U.S. dollar weakened, and U.S. stock futures showed little movement.
• Gold continues its upward momentum, reaching record highs with a year-to-date performance of 25%. This strong performance has been bolstered by expectations of rate cuts, central bank purchases, and increasing interest from retail investors.
• A resurgence in 50-basis-point rate-cut expectations has strengthened the yen, making it the top-performing currency against the dollar this year. Several hedge funds have adopted a bullish stance on the yen, while simultaneously placing long bets against the Australian dollar, Swiss franc, and Chinese yuan.

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

• This week the US extreme movers portfolio delivered a 15.1% return, earning the “Volatile” classification. This week ranks in the 54th percentile for trailing twelve months and 67th percentile since inception.
• Factors accounted for 26.3% of the total return landing in the “Neutral” category. This factor performance placed in the 58th percentile for both inception to date and training twelve months.

International Extreme Movers Volatility and Factor-Driven Speedometers

• The International Extreme Movers Portfolio shifted to the "Neutral" category this week, posting a 14.9% return. This performance places it in the 42nd percentile for the trailing twelve months and the 52nd percentile since inception.
• Factor returns were modest, contributing 19.5% to the overall performance, positioning the portfolio in the "Very Alpha-Driven" category. This week’s factor performance ranked in the 25th percentile for the trailing twelve months and the 18th percentile since inception.

US Extreme Movers Portfolio Exposures

• Software and Semiconductors & Semiconductor Equipment led a massive upward reversal in Information Technology this week in the US Extreme Movers portfolio. The two industries made up 14% of the 16% long allocation which moved tech from the largest short to the largest long allocation.
• Financials also saw a reversal but in the opposite direction, going from an 11% long allocation to a 18% short. Banks made up half of that allocation while Insurance and Consumer Finance accounted for another -10%. The 18% short landed in just the 3rd percentile on a trailing-twelve-month basis.
• Energy remained toward the bottom of the short book with a -13% allocation which was driven primarily by Oil, Gas, & Consumable Fuels stocks.

• The strength of Information Technology led to significant positive exposures to beta factors while a long allocation to Health Care and a short allocation to Consumer Discretionary resulted in positive exposures to residual volatility factors. These exposures point to a sharp increase in risk appetite among US investors.
• Investors heavily favored growth stocks, particularly in Health Care and Information Technology while they sold value-oriented names in Consumer Discretionary and Energy. The -0.76 exposure to Barra’s Earnings Yield factor was the lowest we’ve seen on a trailing-twelve-month basis.
• With the heavy short allocations to Energy and Financials came a strong aversion to interest rates and oil prices. Wolfe’s Interest Rate Beta and Oil Beta factors both fell into their bottom deciles on a TTM basis and their lowest quintiles on a since-inception basis.

International Extreme Movers Portfolio Exposures

• Energy also struggled in international markets as Oil, Gas, & Consumable Fuels drove a 14% short allocation in the International Extreme Movers portfolio. That allocation was the lowest of the trailing twelve months. Stocks in Hong Kong, India, and Canada made up the majority.
• Health Care climbed to the 86th percentile since inception. All industries with the exception of Pharmaceuticals were positive and stocks were broadly distributed geographically.
• Unlike in the US, Information Technology remained one of the largest short allocations this week. Asian Semiconductors & Semiconductor Equipment stocks made up the largest contribution.

• The International portfolio pushed further into an “anti-value” position as Dividend Yield and Earnings Yield factors all fell in the bottom deciles since inception and TTM. Automobiles and Oil, Gas, & Consumable Fuels combined for almost half of the negative exposure to each factor.
• Beta and Volatility factors were also in negative territory which points to the fact that the risk appetite seen in the US market was not evident in ex-US markets. Short allocations in Hong Kong and Turkey were the biggest contributors.
• Crowding factors showed harsh challenges for hedge fund managers. Wolfe’s HF Crowding factor fell to its 5th TTM percentile as its Short Interest factor exposure nearly reached its top decile. That means that popular hedge fund longs were falling and popular shorts were rallying.

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.

• This week, the International Portfolio slightly favored Developed Markets with a 4% long allocation, positioning it in the 43rd percentile for the trailing twelve months and the 51st percentile since inception.
• Singapore notched its highest long allocation in the last twelve months and Australia reached its top quintile which led to a 4% long allocation in the DM Pacific region.
• In Emerging Markets, there was a large disparity between Asia and EMEA. Thailand contributed heavily to a 9% long allocation in Asia but EMEA stocks across the board fell heavily out of favor. Poland reached its largest short allocation on a TTM basis.

Regards,
Jose