by Qontigo
- Earnings reports lift US sectors
- Liquid stocks extend gains worldwide
- Developed Markets ex-USA fare better year to date
Earnings reports lift US sectors
Stocks in all US sectors, except Health Care and Utilities, were buoyed by earnings reports and new economic data last week, resulting in an aggregate weekly gain of about 2% for the STOXX® USA 900 index. The index gain remained within the one standard deviation of the expectations at the beginning of the week, as measured by Axioma’s US4 short-horizon fundamental model. Consumer Discretionary was the top performer among US sectors over the past five business days, outpacing Information Technology and Communication Services.
Information Technology and Consumer Discretionary, two of the largest US sectors, made the largest contributions to last week’s return of the US market. Info Tech, Consumer Discretionary and Consumer Services have outperformed all other US sectors so far in 2023, as investors shifted to a more risk tolerant stance. The risk of the three sectors now nears that of Energy—which used to be by far the riskiest US sector—and they are all contributing to the STOXX® USA 900 index risk more than their sector weights would otherwise suggest.
See graphs from the United States Equity Risk Monitor of 27 January 2023:
Liquid stocks extend gains worldwide
Highly liquid stocks outperformed illiquid stocks worldwide over the past twelve months. The Liquidity style factor seemed to be a bigger driver of returns than other factors more typically associated with high payoffs. Liquidity’s twelve-month return of 2.6% as of last Friday was the most positive among market-based style factors in Axioma’s Worldwide medium-horizon fundamental model. It is not surprising that highly liquid stocks would have done relatively well, as investors tend to sell more liquid names as markets are falling, as they did much of last year, and then buy more liquid names as they dip their toes back in to a rising market as we have seen this year.
All other regions closely monitored by Qontigo’s Equity Risk Monitors saw highly liquid stocks prevail over the past year, except Australia. The Liquidity factor in Europe recorded the largest twelve-month return (of 5%).
See graph from the Global Developed Markets Equity Risk Monitor as of 27 January 2023:
Developed Markets ex-USA fare better year to date
Developed Markets ex-USA have fared better than the US market as stocks climbed in 2023. The STOXX® Global 1800 ex-USA Index rose more than 8% year to date, while the STOXX® USA 900 index underperformed the ex-USA benchmark by two percentage points. The one-month gain of the STOXX® Global 1800 ex-USA Index exceeded the expectations at the beginning of January, as measured by Axioma’s Developed Markets ex-US fundamental short-horizon model.
The risk of Developed Markets ex-USA has fallen since the beginning of the year, as it did for most other markets. Still, the US remained the riskiest region. The STOXX® Global 1800 ex-USA Index’s risk of 17.5% was nearly 300 basis points lower than that of the STOXX® USA 900 Index as of last Friday.
See graphs from the Developed Markets ex-US Equity Risk Monitor as of 27 January 2023:
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