Weekly Factor Returns

A look at what factors influenced the market last week

Equity markets were negative last week. Small caps led the decline with the Russell 2000 down 3.96%. The Russell 1000 dropped 2.00%.

Factor returns were mostly divergent between the two indices. Volatility was the lone factor with directionally similar returns.

Higher Volatility stocks declined relative to lower Volatility stocks. The Volatility spread was -1.63% in the Russell 1000 and -2.75% in the small cap universe. Investors took solace in lower Volatility stocks as the overall market declined.

In the large cap universe, higher Short-term momentum (STM), larger Size, and more attractively valued stocks tended to outperform versus those stocks with the opposite characteristics. STM and Value each had Decile 1 minus Decile 10 spreads over +2%. The large cap Value return was the lone spread that was greater than one standard deviation from its weekly average.

The small cap universe experienced different drivers. There was a Medium-term momentum (MTM) reversal as the stocks that had outperformed the most over the previous six months underperformed last week. Size and Value were also negative but were less meaningful.

In this series, we highlight several factors’ returns along with the broad index. These are factors – or stock characteristics – we monitor closely. Factor returns equal the difference in the average return of the highest ranked 10% (decile 1) of stocks minus the lowest ranked 10% (decile 10) within each metric. Returns are based on stocks that pass our screen for liquidity, price, and analyst coverage; therefore, some index constitutes are excluded (except for index return). Ranks are sector neutral and equal weight. Stocks are ranked one week before the return period date, with returns calculated for the following week.

Read factor explanations here.