Omega Point Blog

Investors Signal a Risk-Off Environment

Alyx Flournoy, CFA

Investors Signal a Risk-Off Environment

May 01, 2022

Please see our Market Summary and Omega Point's Top Surprise Factors of the week below.

The Surprise Metrics measure each factor's return divided by its predicted standard deviation. On a trailing one-week basis and since the invasion on Feb 24, we continue to see multiple standard deviation moves across a broad number of factors that continue to shift each week and are a unique indicator of the market's pulse regarding the significance of the ongoing crisis and its ramifications. We introduced the Surprise Metrics in our Feb 27 Factor Spotlight: Quantifying the Impact of Russia's incursion into Ukraine.

For a deeper dive into the methodology, use cases, and incorporation of Surprise Metrics into your decision-making, I encourage you to check our most recent factor spotlight series: Your Exposure to the New Economic Order - Part I, Part II, and Part III. And if you're interested in how to apply to macro specifically, we encourage you to check out our Mar 27 Issue on the topic.

Please don't hesitate to reach out to us if you have any questions, comments or to discuss ways to incorporate these and other metrics into your strategies. 

 

US Market Summary and Surprise Metrics

US Market: 04/22/22 - 04/28/22

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  • Despite a significant tech-led rally this week, the markets saw substantial volatility, which resulted in all three major US indexes ending the week with a loss. The Nasdaq was down 3.10%, the Dow was down 1.60,% and the S&P 500 was down 1.96% over the trailing 5-day period.
  • The US GDP release revealed that GDP shrunk in Q1 by 1.4% annually. However, the drivers of the decline - trade deficit and inventories - were not overly concerning. Consumer spending remained robust, signaling that the shrinking GDP could be short-lived. Regardless, investors may still be preparing for recession (more on this noted below in our surprise metrics).
  • Tensions in the Russia/Ukraine conflict escalated this week as Russia cut off oil shipments to Bulgaria and Poland.
  • Earnings season continued this week with mixed reports coming from major tech companies. Meta's stock popped after promising earnings results, while Amazon and Spotify underperformed after their earnings releases.
  • Twitter shocked investors with a swift acceptance of Elon Musk's bid to take the company private. Tesla shares struggled this week amid concerns of Elon needing to sell some or all of his stake to help fund the Twitter deal.

 

Omega Point Surprise Metric - Top Macro and Style Factors

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  • Although GB Term Spreads, EUR BBB Bond Prices, and GBP BBB Bond Prices are not in significant surprise territory, these factors saw massive negative shifts this past week.
  • The market favor for risk-off was not heavily reflected in the Crowding factors this week; however, the Beta factors saw more heavy downward downward pressure this week, which is indicative of a risk-off environment.
  • Other Style factors had a generally quiet week, as the surprise metrics remained relatively stable.
 

Omega Point Surprise Metric - Top Sector Factors

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  • Though it remains in heavily positive surprise territory, Aerospace & Defense fizzled this week despite continued rhetoric signaling prolonged conflict in Ukraine.
  • Materials experienced major downward price action, driven by Fertilizers & Agricultural Chemicals and Metals & Mining.
  • As oil prices continue to reach historically high levels, Energy as a sector saw some slight surprise downturn this week.
  • Financials are the sector with the largest negative surprise; Diversified Financials, in particular, saw a huge downward swing in the surprise metric this week.
  • Consumer Staples continues the march upwards, again underscoring defensive positioning as investors brace for recession. Though only Food Products is shown in the table above, most of Consumer Staples’ industries showed increasing surprise this week.

Regards,
Kevin