Weekly Factor Returns

A look at what factors influenced the market last week

Equity markets moved higher last week. It was the second consecutive week where all three indices were positive. The small cap Russell 2000 led the major indices with a 0.88% return.

Factor spreads were directionally similar across four of the five key factors. Small cap factor returns dominated their large and mid cap counterparts. Every small cap factor spread was greater than two standard deviations from its mean last week. All large and mid cap spreads were within normal ranges.

Volatility was the strongest influence on each index with higher Volatility stocks outperforming. The stocks with the most Volatility outperformed those with the least Volatility by 6.32% in the small cap index. Volatility rose by 2.68% and by 2.92% in the mid and large cap indices, respectively.

Value was negative as investors were less sensitive to prices relative to financial metrics. Stocks with the most attractive valuations underperformed those with the least attractive valuations by 5.52% in the Russell 2000, on average. The negative return to Value among small caps was the largest in terms of exceeding normal expectations. The small cap Value return was 2.75 standard deviations below its weekly average.

Smaller companies tended to outperform the largest companies within each index. The largest ten percent of companies in the Russell 2000 underperformed the smallest ten percent by 5.67%, on average. The Size factor is less influential in the Russell 2000 compared to the larger capitalized indices where the Size spreads were less significant.

Short-term momentum (STM) experienced a large reversal in the small cap universe. Stocks that had outperformed the most over the previous four weeks underperformed last week. STM declined by 1.74% in the Russell 1000 and by 1.00% in the Russell MidCap. The small cap STM spread was -6.37%.

Medium-term momentum (MTM) was the lone factor with directionally dissimilar returns. MTM reversed sharply in the Russell 2000 while it was marginally positive in the Russell 1000 and Russell MidCap indices. Stocks that had outperformed the most over the preceding six months tended to underperform last week.

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.

The Russell 1000 Index is a U.S. stock market index that tracks the highest-ranking 1,000 stocks in the Russell 3000 Index, which represent about 93% of the total market capitalization of that index. 

The Russell Midcap Index is a stock market index that measures performance of the 800 smallest companies in the Russell 1000 Index. 

The Russell 2500 Index measures the performance of the 2,500 smallest companies in the Russell 3000 Index, with a weighted average market capitalization of approximately $4.3 billion, median capitalization of $1.2 billion and market capitalization of the largest company of $18.7 billion.

The Russell 2000 Index is a small-cap U.S. stock market index that makes up the smallest 2,000 stocks in the Russell Index. It was started by the Frank Russell Company in 1984. The index is maintained by FTSE Russell, a subsidiary of the London Stock Exchange Group. 

Index performance is presented as a benchmark for reference only and does not imply any portfolio will achieve similar returns, volatility or any characteristics similar to any actual portfolio.  The composition of a benchmark index may not reflect the manner in which any is constructed in relation to expected or achieved returns, investment holdings, sectors, correlations, concentrations or tracking error targets, all of which are subject to change over time. You cannot invest directly in an index. Index performance does not reflect the deduction of any investment management fees, transaction costs, or expenses, and the performance of any investment product may differ from the index.