The Fed Sparks Panic in the Equity Markets

Please see our Market Summary and Omega Point's Top Surprise Factors of the week below.

The Surprise Metrics measure each factor's return divided by its predicted standard deviation. On a trailing one-week basis and since the invasion on Feb 24, we continue to see multiple standard deviation moves across a broad number of factors that continue to shift each week and are a unique indicator of the market's pulse regarding the significance of the ongoing crisis and its ramifications. We introduced the Surprise Metrics in our Feb 27 Factor Spotlight: Quantifying the Impact of Russia's incursion into Ukraine.

For a deeper dive into the methodology, use cases, and incorporation of Surprise Metrics into your decision-making, I encourage you to check our most recent factor spotlight series: Your Exposure to the New Economic Order - Part I, Part II, and Part III. And if you're interested in how to apply to macro specifically, we encourage you to check out our Mar 27 Issue on the topic.

Please don't hesitate to reach out to us if you have any questions, comments or to discuss ways to incorporate these and other metrics into your strategies.

US Market Summary and Surprise Metrics

US Market: 04/29/22 - 05/05/22

• All three major US indices struggled again this week. The Nasdaq was the worst of the three, down -4.30% over the trailing five-day period ending May 5th. The S&P lost 3.28% and the Dow lost 2.71%. The Dow recorded its fifth straight week of losses for the first time since 2012.
• The Fed announced Wednesday that it will indeed increase its benchmark short-term rate by 50 basis points which resulted in a sharp market sell-off in Thursday’s trading.
• The US 10-Year Treasury Yield reached 3.13% on Friday marking its highest yield since 2018.
• Evacuations continued this week in the city of Mariupol as Russian forces inch closer to taking control of the port city amid new sanctions.

Omega Point Surprise Metric - Top Macro and Style Factors

• Macro factors slowed this week with the exception of interest rates. EU Term spreads saw the most notable surprise while Oil Beta, Commodity, and credit spread factors declined.
• Beta bounced back moderately this week across all markets after a sharp decline last week.
• The most significant moves came from Earnings Yield factors which picked up dramatically as investors continue to push heavily into value stocks and away from growth.
• Crowding factors again point to unwinding as HF Crowding sold off and Short Interest rallied, indicating that popular shorts are being covered while longs are being trimmed.

Omega Point Surprise Metric - Top Sector Factors

• The Consumer sectors moved out of the “biggest losers” category this week with some rebound in performance. The exception was Household Durables which continues to struggle, particularly in developed markets.
• Energy and Materials continued in a positive direction while Industrials saw mixed results across the board. Aerospace & Defense remains the industry factor with the highest surprise metric since the start of the conflict in Ukraine.
• Financials has found itself at the bottom of the list, led by Capital Markets in global and emerging markets which sold off to a large degree in this week’s trading. Global Banks, despite a slight uptick, remains the most oversold industry from a surprise standpoint.

Regards,
Kevin