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Equity Risk Monitors — October 1, 2021

Equity Risk Monitor Highlights | Week Ended September 30, 2021

US risk climbs as markets tumble

The US market saw a steep fall last week as its risk continued to climb. The decline came amid fears about inflation, concerns over China’s debt troubles, the lingering pandemic, and a slowdown in the US economic growth. That said, more than half of the stocks in the STOXX USA 900 index were up last week, suggesting it was a decline of larger stocks that heavily impacted the US market.

While most markets were down last week, only the US market fell more than three standard deviations from the expectations at the beginning of the week, as measured by Axioma’s US short-horizon fundamental model. In fact, most markets’ drops remained within one standard deviation of the expectations five business days ago, as measured by local models. The September increase in risk made the US the fourth riskiest geography after China, Japan, Emerging Markets, and Asia Pacific ex-Japan.

See graphs from the United States Equity Risk Monitor as of 30 September 2021:

Please note that we have amended the chart below to show “proportion of stocks ahead of the index.”

Info Tech – the hardest hit US sector last week

US technology stocks were hit the hardest last week, with the Information Technology sector posting the largest weekly loss (nearly 5%) among the 11 GICS sectors in the STOXX USA 900 index. Health Care and Materials were the next biggest losers. All US sectors were down last week, except Energy, which rose more than 3%, and has recorded by far the largest gain (44%) so far in 2021. Still, all US sectors were in the black for the year as of last Thursday, with Utilities and Consumer Staples recording the smallest year-to-date gains (about 4%). Info Tech’s year-to-date return of 14% was somewhere in the middle of the pack.

Still, Info Tech was the largest sector on the US market, its weight nearing 30% in the STOXX USA 900 index. Correspondingly, Info Tech’s contribution to benchmark risk was the largest among all US sectors, with risk exceeding what the sector’s weight would have otherwise suggested. Energy was the riskiest among US sectors, but its weight in the US index was below 5%, and so was its contribution to benchmark risk. Info Tech’s standalone risk was also somewhere in the middle of the pack (along with its year-to-date return), while Consumer Staples remained the least risky sector, as measured by Axioma’s US fundamental short-horizon model.

See graph from the United States Equity Risk Monitor as of 30 September 2021:

Value style factor return spikes

The Value style factor took off last week, continuing the 2021 positive trend observed for value style investing in most geographies Axioma models track closely. Value’s magnitude of weekly performance was considerable, particularly in Axioma’s Worldwide, Developed Markets and Emerging Markets medium-horizon fundamental models, where Value’s weekly return was nearly three standard deviations above the expectations based on risk-model forecasts five business days ago in these models. Bucking the global trend, Value’s return was negative in China for the week. However, Value has recorded strong positive 12-month returns in all regions, and has the second highest return, after Market Sensitivity, among all factors in most models.

See graph from the Global Developed Markets Equity Risk Monitor as of 30 September 2021:

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