Weekly Factor Returns

A look at what factors influenced the market last week

Equity indices rose sharply last week. It was the third consecutive week of gains. The large cap Russell 1000 gained 4.58%, the Russell MidCap gained 3.54%, and the small cap Russell 2000 led with a 5.57% gain.

All factor returns were directionally similar across the capitalization spectrum. Several spreads exceeded normal expectations. Both measures of momentum experienced steep reversals while Volatility spiked.

Stocks that had outperformed the most over the previous six months mostly underperformed last week. Medium-term momentum (MTM) dropped over 5% in each index. MTM declined the most in the Russell 2000. All three MTM spreads were greater than two standard deviations below their respective averages.

Recent winners also reversed. Stocks that outperformed the most over the past four weeks tended to underperform last week. Short-term momentum declined the most among small caps (-5.06%). The large and mid cap STM spreads were each greater than one standard deviation below their averages. The small cap STM spread was two standard deviations below its average.

Volatility was a big driver of returns. Stocks with the most Volatility outperformed those with the least Volatility, on average. The spread between the top and bottom deciles was +9.20% in the Russell 2000, +8.25% in the Russell MidCap, and +8.02% in the Russell 1000. Each spread was greater than two standard deviations above their averages.

Smaller stocks were favored relative to larger capitalized stocks. The largest ten percent of companies underperformed the smallest ten percent by 3.11% in the large cap universe where Size has a disproportionate influence on the overall index compared to the mid and small cap indices. The large cap Size spread was greater than one standard deviation below average.

Value was negative. The most attractively valued stocks tended to underperform the least attractively valued. Value declined the most in the Russell 2000 (-3.23%). Each negative Value spread was at or below one standard deviation below its average.

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.