Weekly Factor Returns

A look at what factors influenced the market last week

Major equity indices were mixed last week. The small cap Russell 2000 Index rose 1.30% and the Russell Midcap Index rose 0.53%. The large cap Russell 1000 Index declined 0.53%.

Four of our five key factors had directionally similar returns. Two factors produced spreads that exceeded normal expectations.

Medium-term momentum (MTM) experienced a pullback. Stocks that had outperformed the most over the past six months tended to underperform last week. The highest MTM stocks underperformed the lowest MTM stocks by 2.81% in the large cap universe and by 2.66% in the mid cap universe. The large cap MTM spread was greater than one standard deviation below its weekly average.

Short-term momentum (STM) also experienced a sharp reversal last week. Stocks that outperformed the most over the past four weeks tended to underperform last week. STM declined the most in the Russell 2000 Index. The STM spread was -2.84% in the small cap universe. The small cap STM spread was greater than one standard deviation below its weekly average.

Size was negative. Smaller capitalized companies outperformed larger companies, on average, within each index. The largest ten percent of companies underperformed the smallest ten percent by 2.25% in the Russell Midcap Index. The large cap Size spread was -2.07%.

Value was in favor. The most attractively valued stocks outperformed the least attractively valued, on average. The small cap Value spread was +1.23%, while the large cap Value spread was +1.10%.

Volatility had mixed results between the universes. Volatility was negative among large and mid cap stocks, while Volatility was positive in the small cap index. The most volatile stocks underperformed the least volatile by 1.97% in the Russell 1000 Index and by 1.82% in the Russell Midcap Index. The Volatility spread was +2.18% in the Russell 2000 as higher Volatility stocks outperformed relative to lower Volatility stocks.

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.