Weekly Factor Returns

A look at what factors influenced the market last week

Stocks declined during the last week of February. The large cap Russell 1000 fell 0.97% and the small cap Russell 2000 lost 1.44%.

There were several factor spreads that exceeded normal expectations. All small cap factor returns were greater than one standard deviation from their averages.

Value and Volatility had divergent returns, which is typical due to their inverse correlation. Volatility was negative as investors sought lower Volatility stocks during the market’s decline last week. The large cap Volatility spread produced the largest absolute return (-5.50%). The large cap Volatility spread was greater than one standard below average. The most volatile stocks underperformed the least volatile by 3.91% in the small cap universe.

Value was a positive driver of returns, particularly in the Russell 2000. The most attractively valued stocks outperformed the least attractive by 4.19%. Value was positive in the large cap index, but less meaningful.

Size was also a positive influence. The largest ten percent of stocks outperformed the smallest decile by over 2.5%, on average, in each index. Size has a larger influence on the overall market in the Russell 1000 than it does in the Russell 2000.

The two measures of Momentum had opposing returns. The small cap spreads dominated their large cap counterparts at each interval. Medium-term momentum (MTM) was positive. Stocks that had outperformed the preceding six months continued to outperform last week. Short-term momentum (STM) experienced a strong reversal in the small cap space. Stocks that outperformed the most over the preceding four weeks tended to underperform, on average, relative to stocks that outperformed during the preceding four weeks.

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.