Weekly Factor Returns

A look at what factors influenced the market last week

Large and small cap equity indices declined for the week ended October 20th. The Russell 1000 declined 2.39% and the Russell 2000 declined 2.25%. Factor spreads were within normal ranges but differed across the capitalization spectrum.

Volatility, within the Russell 2000, had the largest absolute spread. The factor had a negative return on the week, indicating lower Volatility stocks outperformed relative to those with high Volatility. Volatility’s decline was smaller in the Russell 1000.

Medium-term momentum (MTM) was negative. Stocks that had outperformed over the previous six months declined last week. The negative MTM spread in the large cap universe was the largest move for all the factors, relative to its own history. The large cap MTM spread was just within one standard deviation below its long-term weekly average.

Value was positive in each index. As markets declined, investors sought out stocks with the most attractive valuations. Both spreads were over 1.0%.

Short-term momentum (STM) and Size had divergent spreads between the indices. The best stocks over the past four weeks declined in the Russell 1000 but continued to rise in the Russell 2000. Larger companies underperformed in the large cap space but outperformed smaller companies in the Russell 2000.

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.