Equity Risk Monitors — January 24, 2022

Equity Risk Monitor Highlights | Week Ended January 20, 2022

  • US small caps erase prior 11-month gains
  • Info Tech—the biggest loser so far in 2022
  • China ekes out weekly gain after interest-rate cut

US small caps erase prior 11-month gains

Last week’s significant drop in US small cap stocks added to the prior two weeks’ losses, and wiped out all gains from the last 11 months, resulting in a 12-month loss of about 4%. The STOXX® USA 900 Index lost about 4% last week, but its 12-month return remained strongly positive at nearly 14%.

The Russell 2000 and STOXX® USA 900 indices both saw a jump in risk over the past four business days, with short-horizon forecasts increasing by about one and two percentage points, respectively, as measured by Axioma’s US Small Cap and All Cap short-horizon fundamental models. Current predicted volatilities for US small caps (20%) and US large caps (16%) are above their respective long-term medians, although not by much. The Russell 2000 is now the riskiest index among major indices Axioma models track closely, followed by the STOXX® Japan 600 and the STOXX® USA 900.

See graph from the US Small Cap Equity Risk Monitor as of 20 January 2022:

Info Tech—the biggest loser so far in 2022

After two consecutive years of significant gains, the US Information Technology sector is now the biggest loser in 2022. Info Tech posted a year-to-date loss of 10.5% as of last Thursday, as tech shares were hit by the prospect of aggressive increases in interest rates in the near future and the possibility of the Covid-19 pandemic turning in an endemic—rendering technology less essential.

Although all sectors in the STOXX® USA 900 Index, except Energy, are now reporting year-to-date losses, Info Tech had the largest impact on the US index’s loss so far in 2022. That is because tech shares represent nearly 30% of the US index. Info Tech’s current index weight is similar to what it had been a year ago, but the sector’s contribution to benchmark risk far exceeded what its weight would suggest.

See graph from the United States Equity Risk Monitor as of 20 January 2022:

China ekes out weekly gain after interest-rate cut

China was one of the few markets to post a weekly gain, as most major equity markets reacted negatively to inflation concerns and a potential slowdown in global growth. The STOXX® China A 900 Index rose 0.5% last week, as the People’s Bank of China cut interest rates in an effort to boost its economy. The weekly gain in Chinese stocks remained within one standard deviation of the expectation at the beginning of the week, as measured by Axioma’s China short-horizon fundamental model. Still, forecasted risk for the Chinese index continued to rise, surpassing 12% last Thursday.

See graph from the China Equity Risk Monitor as of 20 January 2022:

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