Weekly Factor Returns

A look at what factors influenced the market last week

Equity markets declined in the week ending November 6^th. The large cap Russell 1000 lost 2.55%, the Russell Midcap lost 2.05%, and the small cap Russell 2000 lost 2.03%.

Factor returns were congruent between the large and mid cap universes. Small cap factor returns were mostly less significant or directionally different. Several spreads exceeded normal expectations.

Medium-term momentum (MTM) experienced a sharp reversal among large cap stocks. The stocks that had outperformed the most over the preceding six months tended to underperform last week. The large cap MTM spread was -3.91%, which was greater than one standard deviation below its long-term weekly average. The mid cap MTM spread was -2.55%. MTM was flat among small caps.

Short-term momentum (STM) was positive. It was the only factor where each universe experienced similar returns. Stocks that outperformed the most over the preceding four weeks tended to continue outperforming last week. STM returned 2.28% in the Russell 2000 Index. The small cap STM spread was one standard deviation above its long-term weekly average. STM rose 2.21% in the mid cap universe and 2.00% in the Russell 1000.

Size was sharply negative in the large and mid cap indices. Within each universe, the largest ten percent of companies underperformed the smallest ten percent, on average. In the Russell Midcap Index, Size was -5.49%, which was greater than two standard deviations below its long-term weekly average. Size returned -3.91% in the Russell 1000. The large cap Size spread was greater than one standard deviation below its long-term weekly average. Size was negligible in the small cap index.

Value stocks were heavily favored in the larger capitalized indices. The most attractively valued stocks outperformed the least attractively valued, on average, by 5.09% in the mid cap universe and by 4.05% in the large cap universe. Both large and mid cap Value spreads were greater than two standard deviations above their long-term weekly averages. Value was negative in the small cap space.

Lower Volatility stocks outperformed. Stocks exhibiting the highest Volatility tended to underperform stocks exhibiting the least Volatility. The negative Volatility spreads were -3.25% and -3.24% in the mid and large cap universes, respectively. The large and mid cap spreads were each one standard deviation below their long-term weekly averages. The small cap Volatility spread was -1.44%.

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.

Russell 1000 Index- The Russell 1000 Index measures the performance of approximately 1,000 of the largest U.S. companies within the Russell 3000 Index and is generally considered a benchmark for large-cap U.S. equities.

Russell Midcap Index: The Russell Midcap Index measures the performance of approximately 800 of the smallest companies within the Russell 1000 Index and is generally considered a benchmark for mid-cap U.S. equities.

Russell 2000 Index: The Russell 2000 Index measures the performance of approximately 2,000 of the smallest companies within the Russell 3000 Index and is widely used as a benchmark for small-cap U.S. equities. The index is maintained by FTSE Russell.

The above index’s composition and market capitalization characteristics may change over time due to market conditions and periodic index reconstitution and rebalancing.

Index composition and characteristics are not static and may change significantly over time, including across different market cycles and following periodic index reconstitution and rebalancing. Changes in constituent securities, market capitalizations, sector allocations, and security weightings may affect index performance and risk characteristics. Accordingly, the composition and performance of an index during one period may not be representative of its composition or performance during another period. A benchmark index may differ materially from an actual investment portfolio with respect to investment objectives, security selection, holdings, sector exposures, concentrations, correlations, risk levels, and investment strategies. These differences may result in significant variations in performance, particularly during changing market conditions. Investors cannot invest directly in an index. Index returns generally do not reflect the deduction of investment management fees, transaction costs, or other expenses that would reduce actual investment returns. The performance of any investment portfolio or product may differ materially from that of the referenced index.