Equity Risk Monitors — October 18, 2021

Equity Risk Monitor Highlights | Week Ended October 14, 2021

  • US large caps up, as risk nears historical median
  • China’s risk drops below that of US small caps
  • Oil-sensitive currencies rise against the US dollar

US large caps up, as risk nears historical median

US large capitalization stocks rose last week, as their risk continued to climb towards the historical median. Despite the recent decline in market sentiment, the STOXX USA 900 index gained about 2%, driven by strong earnings reports and encouraging news on falling jobless claims. The one-week return of the US index was about one-standard deviation of the expectation five business days ago, as measured by Axioma’s US fundamental short-horizon model. That said , the STOXX USA 900 was still down about 1% for the month. Short-horizon risk increased more than 200 basis points over the past four weeks, nearing the 20-year median of 13% last week, after approaching the lowest quartile of observations in mid-September.

See graph from the United States Equity Risk Monitor as of 14 October 2021:

China’s risk drops below that of US small caps

The Chinese market was one of the few that was down last week. Despite the decline, its risk continued to drop and is now below that of US small caps. China’s risk has been plunging since August, with the STOXX China A 900 index’s risk dipping to 16% last Thursday, about 100 basis points lower than that of the Russell 2000, as measured by Axioma’s China and US Small Cap fundamental short-horizon models, respectively.

Both markets’ risk fell more than one percentage point last week, but for different reasons. Risk fell in China in the wake of a market slump, while the Russell 2000’s risk decreased as US small caps rose for the week ended Thursday. In fact, US small caps recorded the highest level of risk among all regions Axioma models track closely.

See graph from the China Equity Risk Monitor as of 14 October 2021:

Oil-sensitive currencies rise against the US dollar

The Norwegian krone, Canadian dollar and Russian ruble rose against the greenback as oil prices continued to rally. The Norwegian and Canadian currencies were the biggest winners among major developed market currencies last week, with 7% and 9% one-year returns, respectively, against the US dollar. The ruble’s return, which neared 15% over the same period, positioned the currency at the high end of its one-year return range against the US currency.

In terms of risk, the Canadian dollar was positioned at the high-end of its one-year volatility range against the greenback, but its 7% volatility was somewhere in the middle of the pack relative to other developed currencies. While positioned at the low-end of its volatility range, the Norwegian krone remained the riskiest developed currency. The krone’s volatility of 11% was higher than even that of the Russian ruble—at 9%—as measured by Axioma’s Worldwide fundamental short-horizon model.

See graphs from the Equity Risk Monitors as of 14 October 2021:

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