March was a month of stalling markets. Sometimes, a stall can be useful for managers. Rising markets may lift all boats, but a small break can be helpful for professional managers running strategies with a beta of less than one to public equities.
In mid-March, the Federal Reserve hiked rates by another 25 basis points, as many analysts long feared and expected. Janet Yellen reassured investors that the Fed was not as hawkish as feared, however, which caused long duration rates to fall and interest rates ended the month where they began. The US equity bull market also halted in March as problems passing a healthcare bill suggested that Trump and the Republicans are less likely to provide the tax cuts and infrastructure spending that have already been partially priced into the market. The gains generated this year haven't reversed, but market indices temporarily stopped making all-time highs.
*Asterisk indicates that the polarity of the factor is low minus high, rather than high minus low.
On the factor front, small companies outperformed large companies this month, which may be a surprise for anyone watching AAPL or AMZN go up or the Russell 2000 stumble. When we looked more closely at the data, it was the smaller stocks in our T2000 universe that aren't in the Russell 2000 that significantly outperformed in March.
Stocks with stronger expected earnings growth or just stronger earnings outperformed...High dividend stocks broke their winning streak...Book/Price also underperformed...The stocks targeted by shorts outperformed in March, and with TSLA’s bump at the start of April, it isn't looking great for those short that factor this month, either.
On a quarterly basis, Book/Price had the worst performance in Q1 while the Dividend factor outperformed, followed by the 2 Year Forward Growth factor and the 4 Week Reversal factor.
Going forward, it will be interesting to see if the bull run resumes or if other factor considerations start to dominate the market.
As a reminder, Omega Point clients have access to regularly updated Factor Return data.
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The Omega Point Team