Equity Risk Monitors — June 21, 2021

Equity Risk Monitor Highlights | Week Ended June 17, 2021

  • US market falters on Fed’s signals, as risk continues to fall
  • UK and Australia short-horizon risk at pre-pandemic levels
  • High volatility stocks stage a comeback in global markets

US market falters on Fed’s signals, as risk continues to fall

US stocks fell following the Fed’s announcement on Wednesday that higher interest rates are expected sooner than previously projected. The STOXX USA 900 index’s weekly return was slightly negative last Thursday, as recent losses offset gains seen at the beginning of the week. The weekly loss remained within one standard deviation of the expectation five business days ago, as measured by Axioma’s US short-horizon fundamental model and shown in the “Risk Watch” chart below. Although the Fed’s statement caused some concerns, risk of the US market continued to fall last week, reaching 12.5%—less than a third of its level at the height of the coronavirus crisis in April 2020.

See graph from the US Equity Risk Monitor as of 17 June 2021:

UK and Australia short-horizon risk at pre-pandemic levels

The short-horizon risk of the STOXX UK 180 and STOXX Australia 150 indices has fallen to pre-pandemic levels in recent weeks. Australia’s risk is now three percentage points lower than it was at the end of 2019, while that of the UK is two percentage point lower than its risk on December 31, 2019, as measured by Axioma’s Australia and UK fundamental short-horizon models, respectively. Risk has been trending downwards globally since April 2020, with Australia and the UK becoming the second and third least-risky after Canada, among all geographies Axioma models track closely. Note that at the end of 2019, the UK and Australia were tied as the second-most volatile regions after China, as reflected by the short-horizon forecasts of Axioma’s fundamental local models.

See graph from the United Kingdom Equity Risk Monitor as of 17 June 2021:

See graph from the Australia Equity Risk Monitor as of 17 June 2021:

High volatility stocks stage a comeback in global markets

The Volatility style factor has changed course in global markets, after its cumulative year-to-date return dipped briefly below zero in mid-May. The style factor saw strong positive returns for the past month, indicating that investors have been seeking out riskier stocks, and high volatility stocks have been outperforming their low volatility counterparts over this period. The latest positive performance of the Volatility factor pushed its one-year return above 3%, as measured by Axioma’s Worldwide medium-horizon fundamental model. Volatility saw the highest year-to-date return in the US Small Cap model (7.5%). China, Australia, and Asia Pacific ex-Japan were the only regions where Volatility recorded negative 12-month returns, indicating that low volatility stocks fared better here.

See graphs from the Global Developed Equity Risk Monitor as of 17 June 2021:

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