US Markets Dip Amid Mixed Earnings for Big Tech and Tariff Uncertainty

Market Summary

US Market: 1/31/2025 - 2/6/2025

• Major US stock indices declined again this week. The Dow Jones saw the largest drop at .68%. The S&P 500 and the Nasdaq experienced more modest dips of .22% and .20% respectively.
• It has been a turbulent earnings week and a disappointing start to the year for the Magnificent 7. Increased investor speculation over AI spending by US tech giants following the news of DeepSeek has fueled a trend reversal within the S&P 500 YTD as the Magnificent 7’s gains (.98%) trailed that of the broad index (3.05%) as of the Thursday close.
• On Friday, President Trump announced he will pursue reciprocal tariffs next week, which sent US stocks down further and the US Dollar higher.
• Amidst rising inflation expectations, the Fed indicated that they expect to lower interest rates modestly, if at all, in 2025 due to a US Jobs report that showed sustained but slowing growth and uncertainty over the inflationary impact of proposed trade policy.
• Despite exceeding Q4 2024 earnings expectations, Amazon shares dipped on Friday due to forecasted revenue shortfalls in the current quarter attributed to foreign exchange rate pressures.

Extreme Movers Portfolio Performance

Note: Extreme Movers definitions can be found in the Factor University section on our website.

US Extreme Moves Volatility and Factor-Driven Speedometer

(18.9% Very Volatile, 17.1% Alpha-Driven)

• The US Extreme Movers portfolio delivered an 18.9% return this week, which is in the Very Volatile range. This performance ranks in the 78th percentile for the trailing twelve months and the 85th percentile since the portfolio's inception.
• Factors contributed 17.1% of the total return. This level of factor performance is in the 29th percentile for the trailing twelve months and the 26th percentile since the portfolio’s inception, and classifies as Alpha-Driven.

International Extreme Movers Volatility and Factor-Driven Speedometers

(16.4% Volatile, 18.4% Very Alpha-Driven)

• The International Extreme Movers Portfolio posted a 16.4% return this week. This return ranks in the 69th percentile for the trailing twelve months and the 68th percentile since the portfolio’s inception, earning a Volatile classification.
• Factors accounted for 18.4% of the total return which falls in the 10th percentile over the trailing twelve months and the 13th percentile since inception. This gives it a Very Alpha-Driven designation for the week.

US Extreme Movers Portfolio Exposures

• This week, Information Technology emerged as the most represented sector in the US portfolio, holding a 24% allocation. This marks a significant shift from the previous week, when the sector had a 16% short allocation. IT now ranks in the 85th percentile over the trailing twelve months and the 92nd percentile since the portfolio's inception. All industries within the sector contributed to this positive movement, with Semiconductors and Semiconductor Equipment leading at 10% representation.
• Real Estate climbed to a 6% allocation, making it the second most represented sector in the portfolio. It now ranks in the 85th percentile over the trailing twelve months and the 81st percentile since the portfolio's inception. Within the sector, Health Care REITs held the largest representation at 3%.
• Consumer Staples dropped to the lowest position in the exposures table this week, with a -11% allocation. This is a low level for the sector, as it ranked in the 6th percentile both over the trailing twelve months and since the portfolio’s inception. All industries, except Distribution & Retail, contributed to this decline, with Beverages having the largest impact at -5%.

• Value factors lost favor this week, as Earnings Yield and Dividend Yield across all three models showed negative exposures. Wolfe’s Earnings Yield dropped particularly low, ranking in the 9th percentile over the trailing twelve months and the 14th percentile since the portfolio’s inception. This decline was driven by the portfolio’s long book, suggesting that investors favored higher-priced stocks, especially in the Information Technology sector.
• In contrast, growth stocks were favored, with both growth factors ranking in the top quartile of the data since inception. This exposure was primarily driven by the portfolio’s short positions, as investors shorted low-growth names. Notably, nearly half of the total exposure to Barra’s growth factor came from short allocations within the consumer discretionary sector.
• Beta and Volatility factors were mixed this week. Beta was favored, ranking in the 75th percentile over the trailing twelve months, with contributions from both the long and short books of the portfolio. In contrast, Volatility ranked low, landing in the 22nd percentile for the trailing twelve months. The negative exposure was driven by the short book, while the long book contributed positively, though to a lesser degree.

International Extreme Movers Portfolio Exposures

• Communication Services was the top allocation for the international portfolio this week, increasing from a 4% allocation last week to 10% this week. This move places the sector in the top rank for the trailing twelve months. Within the sector, Entertainment was the most heavily represented industry, contributing approximately 5% on its own.
• Financials was the second most represented sector, with a 6% allocation. This placed the sector in the 65th percentile since the portfolio’s inception. All industries within the sector, except for Capital Markets, contributed to this allocation, with Insurance being the most represented, accounting for about one-third of the total.
• Industrials was the least represented sector this week, with a -10% allocation, placing the sector in the 4th percentile for the trailing twelve months and the 6th percentile since the portfolio’s inception. Electrical Equipment was the industry with the largest short allocation within the sector, contributing approximately -4% on its own.

• Value factors were slightly out of factor this week with all factors landing below the mean for inception to date. Axioma’s Earnings Yield factor placed notably low as it ranked in the 6th percentile for trailing twelve months and 16th percentile since the portfolio’s inception. The long book of the portfolio was the main driver of this exposure showing that investors preferred to buy names with low earnings yield.
• Growth factors showed mixed performance this week. Axioma’s growth ranked in the 58th percentile since the portfolio’s inception, with the short book driving the positive exposure, while the long book contributed negatively, though to a lesser extent. In contrast, Barra’s Growth ranked much lower, landing in the 27th percentile for inception to date, with all of the negative exposure coming from the short book.
• Beta and Volatility factors were relatively muted this week, with most factors hovering around their mean values for both inception to date and the trailing twelve months. Barra’s Beta factor showed an exposure of -0.10, placing it in the 48th percentile for the trailing twelve months. The long book was the primary contributor to this exposure, indicating that investors were long low beta names this week.

International Extreme Movers Portfolio Country Exposures

This 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 remained favored this week with a 3% allocation, placing it in the 44th percentile for the trailing twelve months and the 49th percentile since the portfolio’s inception. In contrast, Emerging Markets had a -3% allocation, landing in the 50th percentile for the trailing twelve months and the 49th percentile since inception.
• Within developed markets, the Americas was the most represented region, with a 4% allocation, all of which came from Canada. Europe and the Middle East followed with a 2% allocation, driven mainly by the UK and Spain, each contributing 2%. The Pacific was the only region within developed markets with a negative allocation at -3%, with Japan being the largest contributor.
• Within Emerging Markets, Asia represented the largest negative allocation at -9%, with South Korea being the main driver, contributing -8% on its own. Europe, the Middle East, and Africa had a -3% allocation, with Turkey being the most influential country, contributing -5% alone. The Americas was the only region with a positive allocation, at 8%, which placed the sector in the 88th percentile for trailing twelve months.

Regards,

Jose