Applied Research

In 10 charts, Diana Baechle, Principal of Applied Research at Axioma, summarizes the initial market reactions of Israel and the Middle East to the Israel-Hamas war.

Most major markets were up in July, but down for the full third quarter – still, risk fell from quarter end to quarter end, with a few exceptions. It started to tick up at quarter end for a few, and our trading horizon model suggests that it will continue to rise.

Time for our quarterly review of the ROOF portfolios, the sentient investment strategies built from our ROOF Score sentiment indicator. In this note we will discuss the performance of both the US and European portfolios in Q3 as well as year-to-date in 2023.

The current high levels of interest rates and the deep inversions of sovereign yield curves have given investors much concern about the potential negative implications for economic growth.

No market remains in strong-form efficiency all the time. Investment decisions are based on forecasts about the future, which implies a certain degree of error – the so-called ‘known unknowns’. But when the macro situation becomes highly uncertain, the size of the errors around those forecasts increases, and conversely, confidence in them decreases. During these periods, when markets adopt a weak-form efficiency, human emotions start to dominate decision-making, especially when faced with new, negative, and unexpected outcomes – the so-called ‘unknown unknowns’.

The Magnificent Seven (Amazon, Apple, Google (Alphabet), Meta, Microsoft, Nvidia and Tesla) make up more than a quarter of the US market, and their stellar performance has driven the US market’s outperformance so far this year. But this overblown market concentration is unsustainable and may result in a swift reversal, exposing investors to greater risk. Investors have been in a tough spot this year, having to choose between partaking in the extraordinary returns of the Magnificent Seven and avoiding the risks that come with an over-concentrated portfolio. Here we look at the impact of the Magnificent Seven on the US market through the lens of ten charts.

We love data. Our clients love data. But when it comes to truly understanding the risk-reward trade-off of an investment strategy, sometimes the devil isn’t in the details. In a whitepaper, “What are the odds?: Getting a better read on portfolio risk-return metrics”, we advocate for spending more time with the portfolio summary metrics as the first port of call, before jumping in headlong into more granular statistics.

Despite all the uncertainty surrounding key macro inputs, as well as a volatile geopolitical environment, the STOXX US Index is up more than 18% year to date in line with other major US large-cap indices. And quite notably, market volatility, as measured by the various time horizons in our risk models and VIX, has been steadily declining.

As hedge funds pile up short Treasury future positions like it’s February 2020, certain parts of the financial markets are getting nervous that we could be in for a repetition of the liquidity crisis seen in early March that year.

Olivier D’Assier, Head of Applied Research, APAC, Qontigo goes onto discussing the outlook for the yen and how that may impact the Japanese equity market.

Vonnie Quinn & Kailey Leinz bring you the latest news and analysis leading up to the final minutes and seconds before and after the closing bell on Wall Street and tackle the August jobs report, Tesla’s big discount and China ramps up its campaign to boost currency. One of the guests today: Melissa Brown of Qontigo.

A third straight month of slower jobs growth and an uptick in the unemployment rate keeps the Fed on track to leave interest rates unchanged. “The market has been anticipating a soft, or no, landing for quite some time, so today’s mixed, but mainly as-expected jobs report has probably already been factored into stock prices.” – Melissa Brown, managing director of applied research at Qontigo, a Deutsche Boerse-owned global index provider