Equity Risk Monitors — November 17, 2020

Equity Risk Monitor Highlights | Week Ended November 12, 2020

Country-level volatility soars globally; Momentum posts some of its largest drops in over two decades; Style factor volatilities jump

Country-level volatility soars globally

Amid rapid shifts in investor views, volatilities at individual country levels climbed around the globe. Stocks were boosted early in the week by positive news of a coronavirus vaccine, improvements in economic data and an earnings season that surpassed expectations. But the outlook dimmed on Thursday, driven by expectations of renewed lockdown restrictions. Most countries finished the week ended Thursday with small weekly gains, as volatility soared. The Global Volatility Hotspots map was peppered with black upward arrows, indicating that volatilities rose at least 1% in most countries worldwide.

See graph from the Equity Risk Monitors as of 11 November 2020:

Momentum posts some of its largest drops in over two decades

Momentum crashed last week in all geographies Axioma models follow closely, with some regions suffering on Monday one of the worst days in over two decades. The plunge pointed to a reversal of fortunes for companies that had been benefitting from the pandemic-related lockdowns (e.g. technology stocks). Momentum tumbled the most in the UK (-6%) and Developed Europe (-5%) over the four days starting on Monday. After this tumultuous week, the year-to-date Momentum return for both US All Cap and US Small Cap turned from positive to negative. For all other regions, Momentum’s year-to-date return remained positive, with the exception of Japan, where it turned even more negative last week. Other factors also saw large swings on Monday following Pfizer’s announcement of a new vaccine that sent the markets soaring. For more details on factors’ reactions on Monday see Melissa Brown’s blog post Pfizer Vaccine Announcement Puts Momentum in the ICU.

See graph from the Developed Europe Equity Risk Monitor as of 11 November 2020:

Style factor volatilities jump

Large swings in factor returns resulted in an increase in factor volatilities. Growth, Momentum, Profitability and Volatility were all near or at the high ends of their 1-year volatility ranges in Axioma’s Worldwide fundamental medium-horizon model (as indicated by the yellow dots on the blue bars in the graph below). Market Sensitivity remained the riskiest style factor in the Worldwide model. For details on the impact of the increase in factor volatility on active risk, see Melissa Brown’s blog post Active Risk Pops on the Heels of a Big Day for Factors.

See graph from the Global Developed Markets Equity Risk Monitor as of 11 November 2020: