Equity Risk Monitors — April 8, 2022

Equity Risk Monitor Highlights | Week Ended April 7, 2022

  • Volatilities come down across European countries
  • Health Care lifts the European market
  • US market risk ticks down as stocks waver

Volatilities come down across European countries

Volatilities at the individual country level came down across Europe last week with few exceptions. The Global Volatility Hotspots chart was peppered with green downward arrows, indicating that volatilities fell at least 1% in most European countries. Hungary and Bosnia and Herzegovina, which saw large volatility increases last week, as measured by Axioma’s Worldwide fundamental short-horizon model, were the exceptions.

At an aggregate level, the STOXX® Europe 600 Index’s risk fell more than 70 basis points last week, as forecasted by Axioma Europe fundamental short-horizon model. Europe remained the third-riskiest among the indices covered by Qontigo’s Equity Risk Monitors, after the STOXX® Japan 600 and STOXX® USA 900 Indices.

See graph from the Equity Risk Monitors as of 7 April 2022:

Health Care lifts the European market

The European Market rebounded strongly over the past four weeks, in line with the trend seen in most other markets, offsetting the significant losses encountered in the couple of weeks after Russia invaded Ukraine. Health Care has been the main positive driver of the STOXX® Europe 600 Index since the war started. Health Care’s weight in the European index rose from 14% right before the war to 16% last week, and it became the second-largest sector in the European index after Financials.

In contrast, Consumer Discretionary, Financials and Industrials were the only three European sectors to record losses since February-end, their aggregate negative contribution to the European index’s post-war return offsetting the positive contribution from Health Care. Still. the small positive contributions from the rest of the European sectors pushed the STOXX® Europe 600 Index’s six-weeks return into positive territory.

Consumer Discretionary, Financials and Industrials together contributed more than half of the benchmark risk as of last Thursday. In each case the sector’s individual risk contribution greatly exceeded its weight. Health Care was the fourth largest contributor to the STOXX® Europe 600 Index’s risk, but its contribution of 10% was a substantial six percentage points lower than its weight.

See graph from the Europe Equity Risk Monitor as of 7 April 2022:

US market risk ticks down as stocks waver

The US market risk ticked down even as stocks flip-flopped last week. US stocks edged higher early in the week after the positive unemployment report, only to plummet following the Fed’s minutes which revealed an upcoming tighter monetary policy than anticipated. The drop in the second part of the week offset prior gains, resulting in a -1% return for the five business days ending Thursday.

At the same time, risk fell nearly one percentage point. The Risk Watch chart showed that the weekly loss in the US market (the blue arrow) remained within one standard deviation of the predicted risk at the beginning of the period as measured by Axioma’s US short-horizon fundamental risk model. In addition, for the fifth week in a row, less than half of stocks beat the index making harder to outperform on the US market.

See graph from the United States Equity Risk Monitor as of 7 April 2022:

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