Weekly Factor Returns

A look at what factors influenced the market last week

Equity markets were mixed last week. Small cap stocks sold off sending the Russell 2000 down 2.19% while large cap stocks manufactured a small gain with the Russell 1000 finishing up 0.34%. Factor returns were significant with most at or above one standard deviation.

Volatility was again a top influence. During the week ended October 6th, investors sought out lower Volatility stocks. The top decile of stocks, ranked highest on Volatility underperformed, on average, relative to the bottom decile, comprised of stocks with the least Volatility. The underperformance gap was -3.40% in the large cap universe and -4.77% among small caps. Each spread was greater than one standard deviation below the weekly average.

Larger capitalized companies were in favor. The biggest companies in each index outperformed the smallest by 2.51% in the small cap universe and by 2.91% among large caps. The proportionally larger influence of bigger companies in the Russell 1000 helped propel the index to a positive weekly return.

Both measures of Momentum were positive. Stocks that outperformed last week were also those with the best relative performance over the past four weeks (Short-term momentum) and the past six months (Medium-term momentum).

Momentum, both medium-term (MTM) and short-term (STM), and Size were strongly positive in both indices. Each spread was greater than one standard deviation above average.

Value was the only factor with diverging spreads between the Russell 1000 and Russell 2000. Equity investors demanded more attractively valued stocks in the small cap space. Higher growth companies performed better in the large cap index.

In this series, we highlight several factors’ returns along with the broad index. These are factors – or stock characteristics – we monitor closely. Factor returns equal the difference in the average return of the highest ranked 10% (decile 1) of stocks minus the lowest ranked 10% (decile 10) within each metric. Returns are based on stocks that pass our screen for liquidity, price, and analyst coverage; therefore, some index constitutes are excluded (except for index return). Ranks are sector neutral and equal weight. Stocks are ranked one week before the return period date, with returns calculated for the following week.

Read factor explanations here.