After a tumultuous four-day trading week, we wanted to quickly check in on some factors that we've been tracking, and then examine why Profitability is being flagged as “Extremely Oversold,” and compare the current period to previous times of weakness for that factor.
I hope those of you in the US enjoyed Thanksgiving weekend with your families while we took a brief hiatus from Factor Spotlight. This week, we'll provide an update on some factors we've been tracking for the past few weeks, as well as dig into an interesting phenomenon that we're observing in the relationship between Earnings Yield and Value.
Before we jump into this week's Factor Spotlight, I wanted to let you know that I will be at Learn2Quant New York on Friday, November 16, where I will be leading a session on "How to be Factor Aware" alongside Axioma's Melissa Brown. If you're in NYC this upcoming week, we hope you can attend.
This week's market rally has resulted in pundits pointing towards a recovery due to better-than-expected corporate earnings and a softening of the trade war between the US and China. In our conversations with clients, we're hearing a lot of speculation about whether or not this is a legitimate bounce in the market or simply a short squeeze in the wake of the broad selloff of the past several...
Over the past couple of weeks, we've discussed the factor rotation we observed during the initial market selloff, and how you can create a defensive basket of ETFs to maximize exposure to the defensive factors (Value, Profitability) and minimize exposure to the cyclical factors (Volatility, Market Sensitivity).
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.
Taking 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...