This Week's Market & Factor Update

We hope you had a chance to read this past Wednesday’s Special Factor Spotlight Flash Report on the growing fallout in momentum. This trend continues unabated into this edition, and as you can see in the tables below, momentum finished the week with the largest decline in both the US and Worldwide factor models. We plan to resume our ESG coverage next week, but in the meantime we hope you enjoy this week’s market and factor update.

‍This Week's Market and Factor Update:

US Market (9/6/19 - 9/12/19)

• In a riveting week, particularly for factors, the market kicked off with a downward move and then staged a steep rally starting on Tuesday, leaving the major indices just shy of all time highs at the end of the week.
• On Friday (not captured in the above chart), the market ended flat to slightly down despite positive news that China would exempt some US farm products (including pork and soybeans) from tariff increases and Trump suggested a potential interim deal with Beijing.
• Apple was a bit of an anchor on the major stock averages after Goldman Sachs cut its price target based on margin concerns.
• News on Thursday that the consumer price index had hit an 11 year high in August didn’t deflate investors expecting a Fed rate cut next week.
• U.S. retail sales in August doubled consensus expectations, almost entirely driven by auto purchases, suggesting consumer confidence.

‍US Model

• Momentum was on everyone’s minds as it fell nearly 1.5 standard deviations in the past week, down 4.14% on a cumulative basis MTD and taking many investors by surprise. We shared our observations in this week’s midweek Factor Spotlight, as all eyes remain focused on this factor.
• After seeing steady strength over the past few weeks, Growth in the US plunged 1.23 standard deviations, while Value was the biggest gainer. This trend underscores our observations of the significant rotation out of expensive software names and into value Energy/Industrial names that is driving the momentum crash.
• Market Sensitivity and Volatility each saw sizable reversions that removed their Oversold designations as the market rallied.
• US Total Risk (using the Russell 3000 as proxy) continued to rise, up 62 bps over the course of the week.

‍Worldwide Model

• The prevalent trends that we’ve seen in the US have echoes worldwide, with Growth and Momentum getting crushed while Value gained over one standard deviation over the past week.
• Earnings Yield also saw a massive rally, up almost one standard deviation during that same time.
• Market Sensitivity and Volatility also gapped up on a normalized basis, as we’d seen in the US during this week’s equity rally.
• Profitability continued its decline, and is now approaching Oversold territory.
• Global risk (using the ACWI as proxy) saw some lift (+ 27 bps), but not as much as US risk.

Regards,
Omer