US Debt Ceiling Decision

Market Summary

US Market: 5/19/2023 - 5/25/2023

• This week’s markets finished in the red, as most major indices finished in negative territory. The Dow dropped -1.98%, while the S&P posted returns of -0.97%. The Nasdaq was the sole survivor with modest returns of 0.32%.
• Nvidia’s stellar earnings report propelled the stock to unpredictably high levels after a 25% increase, which paved the way for an industry-wide surge.
• Neuralink received FDA approval to start clinical trials on humans. This represents a new step towards the expansion of the controversial neurotechnology industry.
• An increase in the Debt Ceiling seems closer and closer, despite the White House and the House of Representatives’ multiple failed attempts to strike a deal in the past few weeks.

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 had a return of 16.2% this week, classifying the week as "Volatile" and sitting at the 75th percentile since we started collecting data in January 2007.
• Alpha and Factors battled for the spotlight, as this week’s alpha influence landed in the 44th percentile ITD. This week’s factor contribution of 26% categorizes this week as “Neutral”.

International Extreme Movers Volatility and Factor-Driven Speedometers

• The International Markets differed significantly from the US Markets in terms of volatility and Alpha contribution. The returns of the portfolio of 14.6% over the week classifies this week as “Neutral”.
• Factors drove 31.1% of the portfolio performance, categorizing this week as “Factor-Driven”. Alpha influence landed in the 22nd percentile ITD.

US Extreme Movers Portfolio Exposures

• The US Extreme Movers portfolio continued with strong positive allocations to Information Technology, which landed in the top quintile both on a TTM and an ITD basis. Software accounted for 17% of the total 20% allocation, followed by IT Services at 4%. Semiconductors diversified with a short allocation of 3%.
• Energy also saw strong positive representation in the portfolio, landing in the top decile TTM. Oil, Gas & Consumable Fuels accounted for 13% of the 17% position.
• Consumer Discretionary took a big hit with a 21% short allocation in the portfolio. Specialty Retail, Textiles, and Apparel & Luxury led this short allocation, while Automobile-related Industries were part of the long book.

• The portfolio continued with the tilt towards high-beta high-volatility names, with all the exposure to Beta and Volatility coming from the long side of the book.
• The Growth exposure also came solely from the longs, while Value’s neutrality came from a combination of long and short allocations to anti-Value names. All Quality factors landed in the bottom quartile ITD, given long positions in low profitability and quality names.
• Interest Rate Beta remained high, at the 70th percentile, while Oil Beta jumped to the top decile TTM. ETF Flow exposure was amongst the highest since 2007, all coming from the long side of the book.

International Extreme Movers Portfolio Exposures

• As seen in its US counterpart, the International Extreme Movers Portfolio saw strong positive positioning to Information Technology and strong negative positioning to Consumer Discretionary.
• Information Technology, which had an allocation in the 99th percentile TTM and ITD, saw positive contributions from all its Industries, most predominantly Semiconductors & Semiconductor Equipment at 6%.
• Consumer Discretionary took a dive relative to last week and landed in the bottom decile both on a TTM and ITD basis. All Industries but Automobiles and Automobiles Components contributed to this short allocation.
• All Industries within Consumer Services were part of the short book, with the Sector finishing in the 2nd percentile ITD.

• The portfolio shifted towards low-volatility names and against high-volatility names, placing Residual Volatility exposure at the bottom decile ITD. Exposure to beta came exclusively from the long book, as investors mostly favored anti-beta names.
• Growth, Value, and Quality factors remained relatively neutral this week, without large contributions from either the long or the short side of the book.
• The Oil Beta exposure resulted in a combination of both long and short positions in names with a positive relationship to oil prices. Interest Rate Beta exposure saw contributions from both sides of the book.
• Popular longs mostly favored investment portfolios, as shown in the exposure to HF Crowding, while the negative exposure to Short Interest was driven by long positions in popular short names.

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 led the long side of the book this week with a 16% long allocation, locating it at the top. On the flip side, Developed Markets saw strong short book representation coming mainly from Europe & Middle East.
• Korea was the biggest winner this week, with a whopping 30% allocation in the book. Coupled with India’s 11% allocation, it propelled Emerging Markets to a 70th percentile TTM allocation.
• Israel, Sweden, and the United Kingdom led the short allocation to Developed Markets. Israel, in particular, had one of its most negative allocations ITD, at the 1st percentile.

Regards,
David

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