US Stocks Falter on Mixed Payrolls Data

Market Summary

US Market: 8/30/2024 - 9/5/2024

• U.S. headline indices faltered this week in anticipation of Friday’s payrolls report. The Nasdaq was down the most at -2.2%, followed by the S&P 500 at -1.6%. The Dow posted the best return at -0.88%.
• August nonfarm payrolls data showed mixed signals, as the number of new jobs added in August slightly exceeded July, but the unemployment rate crept lower. The results bolstered uncertainty in the market around how large of a rate cut to expect from the Fed at its next meeting.
• Broadcom reported earnings this week, facing a similar fate to Nvidia, as it slid 7% despite beating expectations on both earnings and revenue. The positive results were overshadowed as investors were disappointed in the company’s sales outlook for the current quarter.

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 U.S. Extreme Movers portfolio delivered a 15.5% return this week, placing it in the “Volatile” category. This week's performance ranks in the 61st percentile for the trailing twelve months and the 70th percentile since inception.
• Factors accounted for 25.1% of the total return landing in the “Neutral” category for a second week. This level of factor performance lands in the 53rd percentile since inception and was driven equally by Style and Industry factors.

International Extreme Movers Volatility and Factor-Driven Speedometers

• The International Extreme Movers portfolio also fell into the "Volatile" category this week with a return of 15.8%. This week's performance ranks in the 59th percentile for the trailing twelve months and the 63rd percentile since inception.
• Factor returns were notably low, contributing just 20.2% of the total return and placing the portfolio again in the "Very Alpha-Driven" category. This factor return ranks in the 20th percentile since inception.
• Markets that are both volatile and very-alpha driven can provide good opportunities for fundamental managers, as there are strong returns that are driven by stock-specific moves, rather than systematic market-forces.

US Extreme Movers Portfolio Exposures

• Consumer Staples led the US extreme movers portfolio this week with a 13% allocation. This positioned the sector in the 94th percentile over the trailing twelve months and the 95th percentile since the portfolio’s inception. Within this allocation, the “Food Products” and “Household Products” industries had the highest representation.
• Financials ranked as the second most represented sector this week with an 11% allocation. This shift placed the sector in the 82nd percentile for both the trailing twelve months and since inception. Within this sector, “Insurance” and “Financial Services” were the most represented industries.
• Information Technology remains the least represented sector, with a 23% short allocation, placing it in the 7th percentile since inception. The main contributor to this allocation was the “Semiconductors” industry, which accounted by -14% alone.

• The US portfolio maintained a "risk-off" stance this week. Value factors were notably strong, particularly Dividend Yield, which ranked near the top decile since inception across all models. The long positions in Consumer Staples and short positions in Information Technology made up nearly half of the total portfolio exposure to these factors.
• Quality factors were also in favor this week, with Management Quality and Earnings Quality ranking especially high, landing in the 90th and 77th percentiles since inception, respectively. The short book was the primary driver of this exposure, contributing by more than three-quarters of the total.
• On the flip side, Beta and Volatility factors were notably weak. Residual Volatility, Beta, and Market Sensitivity factors fell near the bottom decile since inception. Both the long and short sides of the portfolio contributed to these negative exposures.

International Extreme Movers Portfolio Exposures

• The Consumer Discretionary sector was the most represented in the international portfolio this week with an 8% allocation. This placed the sector in the 90th percentile on a trailing twelve-month basis. Within the sector, the "Hotels, Restaurants & Leisure" industry was the most significant, accounting for more than half of the total allocation.
• Consumer Staples followed closely with a 7% allocation, positioning the sector in the 90th percentile on a trailing twelve-month basis. The long book of the portfolio was the primary driver.
• Materials continued to be the least represented sector this week with a -14% allocation, placing it in the 5th percentile for trailing-twelve months and the 11th percentile since inception. The “Metals and Mining” industry was the most significant, accounting for nearly the entire allocation of this sector.
• The second least represented sector was Information Technology with a -12% allocation, placing it in the 12th percentile for trailing-twelve months and the 6th percentile since inception. The Semiconductors & Semiconductor Equipment industry was the most significant, representing more than half of the total allocation.

• This week, the International Portfolio showed low exposures to value factors, with most landing near the 30th percentile for trailing twelve months. The Value (Barra) factor was particularly low, falling into the 14th percentile. The long positions in the Industrials and Consumer Discretionary sectors were the main contributors to this low exposure.
• Beta and Volatility factors were mixed this week. While volatility factors were neutral, Beta and Market Sensitivity factors were low, landing in the bottom quintile since inception. The long book of the portfolio was the primary driver of this negative exposure.
• On the other hand, international investors favored growth names this week. Growth (Axioma) had an exposure of 0.18 which placed it in the 96th percentile on a TTM basis. Both the short and long sides of the portfolio contributed equally to this exposure.

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 favored Emerging Markets with a 9% allocation, positioning it in the 69th percentile for trailing twelve months and the 62nd percentile since inception. In contrast, Developed Markets had a -9% allocation, landing in the 25th percentile for trailing twelve months and the 30th percentile since inception.
• Within Emerging Markets, Asia was the most represented region with a 7% allocation. China and India were the leading countries, with allocations of 15% and 14%, respectively.
• In the Developed Markets, Europe & Middle East had the largest short allocation at -6%. Sweden and Switzerland were the primary drivers, each contributing by -3%.

Regards,
Jose