Equity Risk Monitors — May 9, 2022

Equity Risk Monitor Highlights | Week Ended 5 May 2022

  • Tech stocks drive down the US market
  • UK remains among relative equity-market winners despite grim economic outlook
  • US dollar nears a 20-year high

Tech stocks drive down the US market

Technology shares were among the hardest hit in the US last week, with the Info Tech sector in the STOXX® USA 900 index posting a weekly loss of nearly 5%—the third largest after Consumer Discretionary (-8%) and Real Estate (-7%). Info Tech became the third biggest loser so far in 2022, after Consumer Discretionary and Communication Services, among the 11 GICS sectors in the STOXX® USA 900 index. (Note that both Consumer Discretionary and Communications Services contain large companies that were formerly classified as Information Technology and/or are heavily dependent on technology, so performance of the three sectors is related.)

Info Tech represents a third of the US market and was responsible for about 40% of the weekly and year-to-date declines in the STOXX® USA 900 index. All US sectors were down last week and for the year, except Energy, which rose more than 4% over the past five business days and has recorded a staggering year-to-date gain of 47%.

Info Tech’s contribution to benchmark risk was the largest among all US sectors, far exceeding what the sector’s weight would have otherwise suggested. Info Tech’s standalone risk was surpassed only by that of Consumer Discretionary and Energy, as measured by Axioma’s US fundamental short-horizon model.

See graph from the United States Equity Risk Monitor as of 5 May 2022:

UK among relative equity-market winners despite grim economic outlook

The STOXX® UK 180 index remains among the few major benchmarks to see gains so far in 2022, despite falling 1% last week, following the Bank of England’s grim economic forecast. Only Canada has recorded a higher year-to-date return than the UK, among the geographies tracked by Qontigo’s Equity Risk Monitors. The UK’s equity market success this year is attributable to the Energy, Health Care, Materials and Utilities sectors.

At the same time, the STOXX® UK 180 index risk forecast fell significantly from the mid-March peaks, reached following Russia’s invasion of Ukraine. Still, the most recent risk forecasts remained above pre-war levels, as measured by all four variants of Axioma’s UK risk model: statistical and fundamental at short and medium horizons.

See graph from the UK Equity Risk Monitor  as of 5 May 2022:

US dollar nears a 20-year high

The US dollar soared following last week’s announcement from the Fed that it intends to raise interest rates by half a percentage point, nearing levels not seen in nearly 20 years. All major developed currencies recorded a one-year loss, being pushed to the bottom of their one-year return ranges against the greenback. The Japanese yen saw the largest yearly loss, falling 16%.

Most currencies were positioned at or near the high ends of their volatility ranges against the US dollar last Thursday. The Norwegian krone remained the riskiest and the Singapore dollar the least risky among developed currencies.

See graph from the Equity Risk Monitors as of 5 May 2022:

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