This week brought with it some mixed news, between the potential jobs impact stemming from the government shutdown, increased optimism over US-China trade, and recent comments from the Fed about the need for “patience”. With regard to factors, we're seeing signals that indicate that we're in the midst of a return to a “risk-on” environment, with Volatility and Market Sensitivity both getting bid up. At the same time, Profitability (Quality) continues to slowly recover. Let's dig in.
The US Market factor (99% correlated to the S&P 500) saw a substantial rebound, up 6.53% since last Friday. The combination of Friday's strong jobs print, trade optimism, and a positive forecast out of GM had investors buying up stocks after the recent bout of pain in the market.
Here's an update on how some key factors have changed in our normalized return indicator over the past week.
This factor was the highest performing factor over the past week, up 1.15% and a whopping +1.44 standard deviations on a normalized basis since Jan 4. A rally of that magnitude in Volatility serves as a strong signal that investors have been eager to add more risk to their portfolios.
Similar to Volatility, Beta enjoyed a major recovery - up 2.47% in absolute terms and +1.13 standard deviations on a normalized basis. This suggests that investors were happy to put money into names that move in step with the market, another indication that many were looking at recent market turmoil in their rearview mirror.
Lastly, we saw positive movement for Profitability (one of the pillars of “Quality), but not to the same extent as the other two factors that we've tracked here.
As always, if you'd like to see what your portfolio's relationship is with any of these factors, or would like to better understand how you can mitigate factor exposure, please don't hesitate to reach out.