Equity Risk Monitors — May 23, 2022

Equity Risk Monitor Highlights | Week Ended 19 May 2022

  • US Consumer Staples bucks the trend of defensive sectors
  • Developed Markets ex-US fares better amid market tumult
  • Russian ruble becomes biggest winner against greenback

US Consumer Staples bucks the trend of defensive sectors

Consumer Staples saw the largest decline (of 7%) among US sectors over the past five business days, driven down by Walmart and Costco. Other defensive sectors in the STOXX® USA 900 Index, such as Energy, Health Care and Utilities, were up for the week. Despite its relatively small 7% weight in the US index, Consumer Staples had the largest negative contribution to the benchmark’s weekly return. As sectors’ weekly performance diverged, the US market finished the week relatively flat.

After being among the few US sectors to report slightly positive year-to-date returns, last week’s drop pushed Consumer Staples below the red line. At the same time, Consumer Staples’s stand-alone risk jumped more than three percentage points last week alone, as measured by Axioma’s short-horizon fundamental model. Utilities replaced Consumer Staples as the least risky US sector. Still Consumer Staples’ contribution to the STOXX® USA 900 Index risk was much lower than what the sector’s weight would otherwise have suggested.

See graph from the United States Equity Risk Monitor as of 19 May 2022:

Developed Markets ex-US fares better amid market tumult

Developed Markets ex-US has fared better than the US market amid the recent market tumult. The STOXX® Global 1800 ex-USA Index rose more than 2% last week, while the US market fell slightly (-0.35%). The weekly gains of the STOXX® Global 1800 ex-USA Index exceeded the expectations at the beginning of the week, as measured by Axioma’s Developed Markets ex-US fundamental short-horizon model.

The STOXX® Global 1800 ex-USA Index’s monthly return was still negative, nearing -6%, but that figure represents less than half of the STOXX® USA 900 Index’s monthly loss. Developed Markets ex-US risk fell slightly, while US risk continued to rise over the past week. STOXX® Global 1800 ex-USA Index’s risk of 17.5% was 6.5 percentage points higher than that of the STOXX® USA 900 Index as of last Thursday. Of course, returns for longer time periods, the last 3 months, 6 months, quarter, and year, have all been negative and for most accompanied by sharp increases in forecast risk.

See graph from the Developed Markets ex-US Equity Risk Monitor  as of 19 May 2022:

Russian ruble becomes biggest winner against greenback

The Russian currency surged to a four-year high against the US dollar last week, following Vladimir Putin’s demand at the end of March for payments in rubles from “unfriendly” countries buying Russian gas. The ruble fell abruptly following the sanctions imposed on Russia immediately after the start of the Ukraine war, but the Russian currency has not only retraced its steps, but it became the best performer against the US dollar among both developed and emerging currencies.

The ruble’s annual return against the greenback now exceeds 30%. The volatility of the Russian currency quadrupled in twelve months, exceeding 50% last week. The ruble was positioned at the high end of its one-year volatility range against the US dollar and was the riskiest among both developed and emerging currencies last Thursday.

See graph from the Emerging Markets Equity Risk Monitor as of 19 May 2022:

For more insights and research from the Applied Research team, please click here.