Equity Risk Monitors — December 10, 2021

Equity Risk Monitor Highlights | Week Ended December 9, 2021

  • US market risk ticks up as stocks waver
  • Asset-asset correlations spike
  • US trading volumes hit new high

US market risk ticks up as stocks waver

The US market flip-flopped last week, with stocks rallying early in the week, only to plummet on Thursday, as investors assessed the potential impact of new restrictions on the global economy. Thursday’s drop, however, did not offset prior gains, resulting in a positive return for the past five business days. The Risk Watch chart shows that the weekly gain in the US market (the blue arrow) remained within one standard deviation of the predicted risk at the beginning of the period (the blue dot), as measured by Axioma’s US short-horizon fundamental risk model.

For the third week in a row, less than half of stocks beat the index. Last week saw the lowest proportion of US stocks in one year that were ahead of the market, indicating that it was larger names that drove the US market up last week and therefore fewer stocks have participated in the positive return of the benchmark.

See graphs from the United States Equity Risk Monitor as of 9 December 2021:

Asset-asset correlations spike

Asset correlations in the US skyrocketed in December, after dipping to a six-month low at November end. The median pairwise realized 20-day correlation in the STOXX USA 900 Index quadrupled in less than two weeks, exceeding 0.40 on Thursday—a level not seen in over a year. The 60-day median pairwise asset correlation in the US index also climbed, albeit to a lesser extent.

Higher asset correlations typically reflect concerns that economic and market events are driving stock prices, rather than companies’ individual characteristics. At the moment, investors seem to be concerned about the uncertainty created by the Omicron variant. We also observed a jump in asset-asset correlations in most other major benchmarks, except for China and Australia.

See graph from the United States Equity Risk Monitor as of 9 December 2021:

US trading volumes hit new high

Trading activity continued to climb in the US, as stocks rose and fell over the past couple of weeks. After dropping to a year-to-date low in early September, the average daily volume (ADV) for the STOXX USA 900 Index has been on a steep ascending trend, exceeding $365 billion last week and breaching the highs seen in March of this year. Current trading volume has been the highest in Information Technology and Consumer Discretionary, both far surpassing their respective six-month averages.

See graphs from the United States Equity Risk Monitor as of 9 December 2021:

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