Last week, we discussed how much the market's recent drawdown was driven by a factor rotation away from the cyclical factors (Volatility, Market Sensitivity, & Momentum) and into the more defensive factors of Size, Value, & Profitability. Though we've seen a market bounceback in the past week, movements continue to be heavily correlated with the factor rotation, as shown below.
Factormaggedon 2018?
October 12, 2018Taking a break from our usual focus on a specific factor this week, we'll be sharing our observations on the recent market sell-off from a factor point-of-view. The Nasdaq and Dow are off to their worst start to a fourth-quarter since 2008, and we’re seeing one of the steepest market declines in recent memory. While many pundits are blaming rising interest rates, industrial weakness, and...
Profitability is Inflecting
September 28, 2018In the past couple of months, we've highlighted how Profitability (a component of Quality), has been Oversold relative to its long-term trend.
As a reminder, Profitability is a combination of return-on-equity, return-on-assets, cash flow to assets, cash flow to income, gross margin, and sales-to-assets.
Over time, the risk premia for Profitability has been strongly positive (see below), but...
Momentum Inflecting
September 21, 2018For the past few weeks, we've been closely following Medium-Term Momentum as it sharply climbed into Overbought territory. While we've talked about this factor a lot recently, it's been a very active signal in both our US and Global models, and we're now observing that Momentum is currently at an inflection point.
As a reminder, we define Medium-Term Momentum as cumulative return over the...
Factor Spotlight: Profitability
September 14, 2018Happy Friday. This week we're going to discuss how Profitability (a component of Quality) is Oversold in both our US and Global models, and provide an update on Medium-Term Momentum (which we had flagged as Overbought last week).
Profitability If you recall our Factor Spotlight note on 4/26/18, we introduced Profitability as a key proxy for Quality. Profitability is a combination of...
Factor Spotlight: Momentum Update
September 07, 2018I hope you've been having a great summer. While factor movement has been relatively quiet this season, we're now seeing the emergence of signal for Medium-Term Momentum factor in both the US and Global models. Usually, when we see this type of movement in both models, it makes for a much stronger signal.
The last time we discussed Momentum on July 12th, we had flagged it as "Oversold" as it...
Factor Spotlight: Earnings Yield & Profitability
August 09, 2018Hope your week is going well. Today, I wanted to highlight recent trends in the two key components of what is referred to as "Quality" - the Earnings Yield and Profitability factors.Our Factor Profile tool is currently indicating that Earnings Yield and Profitability are reaching simultaneous inflection points in our US model. As I'll show below, historically both of these factors have very...
Factor Spotlight: Size
August 02, 2018This week we'll be highlighting Size factor, which our Factor Profile tool is currently flagging as "Extremely Overbought" in our global model, and "Overbought" in our US model.As a reminder, Size is defined as the natural logarithm of market cap for each company. A negative return for Size means that smaller cap stocks (those with negative exposure to the Size factor) fared better.On March...
Dividend Yield & MTM Update
July 26, 2018Here are a couple of quick updates on some factors that we've discussed in recent weeks.Dividend Yield / Growth Update Last week, we highlighted the Dividend Yield factor in our US model.
- At the time, our Factor Profile tool had isolated it as being “Extremely Oversold” at -2.24 standard deviations below the historical mean on a normalized basis.
- Today, this factor sits at -2.31 SD below the...