Weekly Factor Returns

A look at what factors influenced the market last week

Equity markets produced strong returns in the first week of August. The large cap Russell 1000 gained 3.73%, the small cap Russell 2000 gained 3.54%, and the Russell MidCap gained 3.19%.

Factor returns were mostly similar and also generated wide spreads. Almost every factor in each capitalization range had returns that exceeded normal expectations.

Volatility was a leading factor last week. The most volatile stocks outperformed the least volatile, on average, by 7.31% in the mid cap universe. The mid cap Volatility spread was greater than two standard deviations above its average. The large cap Volatility spread (+5.61%) and the small cap Volatility spread (+5.74%) were each greater than one standard deviation above their respective averages.

Value was not a return driver and produced negative returns. Stocks with the most attractive valuations tended to underperform those with the least attractive valuations. Value declined the most in the mid cap space. The mid cap value spread (-4.27%) was two standard deviations below its average. The large cap Value spread (-3.86%) was also two standard deviations below its average. The small cap Value spread (-3.21%) was greater than one standard deviation below its average.

Smaller companies fared better during the market rally. Size was negative in each capitalization range. The smallest ten percent of companies outperformed the largest ten percent within each index. Negative returns to Size was most prominent in the small cap universe where the spread was -3.97%. Both the small and mid cap Size spreads were greater than one standard deviation below their averages.

Short-term momentum (STM) experienced a strong reversal, led by mid cap stocks. Stocks that outperformed the most over the preceding four weeks underperformed last week. The mid cap STM spread was -6.15%, the large cap STM was -4.87%, and the small cap STM spread was -4.91%. The small cap STM was two standard deviations below average while the large and mid cap STM spreads were each greater than two standard deviations below their averages.

Medium-term momentum (MTM) also reversed in the large and mid cap spaces. MTM was marginally positive in the Russell 2000. Stocks that outperformed the most over the preceding six months tended to underperform last week. The MTM declines in the large and mid cap indices were each greater than 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.