Axioma Risk Monitor
Equity edition

US risk jumps but remains well below historic records
Momentum fares well amid market gyrations
Developed currency volatilities shift higher




US risk jumps but remains well below historic records


Last week’s large swings in equity markets made the US the second riskiest country after China, ahead of Emerging Markets, among the regions Axioma’s models track closely. US stocks’ rallies on Monday and Wednesday offset the dramatic sell-offs on the other three days of the week, resulting in a small gain for the Russell 1000 for the week ending Thursday. The surge on Monday followed announcements from major central banks around the world that pledged to take action against the effects of the coronavirus pandemic. However, following the surprise rate cut by the Fed on Tuesday, US stocks rose briefly, only to fall abruptly afterwards, resulting in a 3% loss for the day—perhaps an indicaton that investors see the Fed’s move as a sign of a worsening situation in US markets. US stocks rallied again on Wednesday after the House approved an emergency spending package to combat the coronavirus outbreak and after the Vice President Joe Biden’s primary success on Tuesday. But Thursday brought another round of sell-offs, with the Russell 1000 falling 3%.

As investors braced for a surge in coronavirus cases in the US, the Russell 1000’s risk rose 121 basis points over the past five days, for a total of 856 basis points over the past two weeks, as measured by Axioma’s US short-horizon fundamental model. The jump in risk was almost entirely driven by the rise in factor volatility, as shown by the decomposition of the change in risk from the factor model viewpoint. US short-horizon risk of 19% on Thursday was above the 38-year median of 14%. We have not seen this level of risk in the US since the beginning of 2019 , but it remains well below the historic record levels of 47% seen at the height of the global financial crisis.

See graph from the US Equity Risk Monitor as of 5 March 2020:


Momentum fares well amid market gyrations


Medium-Term Momentum continued to ascend, despite recent market gyrations. Momentum posted positive one-, three-, and six-month returns in all of Axioma’s medium-horizon fundamental models. Momentum also recorded the highest positive cumulative six-month return among style factors in each of Axioma’s medium-horizon fundamental models, except in the US All Cap, China and Australia models. Momentum did extremely well in Canada, gaining 2% over the past week and 11% over the past six months. Momentum’s year-to-date returns in Canada, UK, Asia Pacific ex-Japan, and Emerging Markets were more than two standard deviations above the long-term average (based on expected volatility at the beginning of the year). For more insights on the recent style factor performance, see blog post Markets - and Factor Returns - Run Wild: Time to Check Your Bets.

See graph from the Global Developed Markets Equity Risk Monitor as of 5 March 2020:



Developed currency volatilities shift higher


Major developed market currencies saw their risk jump, driven by both the current volatile environment and as central banks around the globe are making a coordinated effort to combat the impact of the coronavirus pandemic. Most developed currencies have been pushed to the high-ends of their volatility ranges against the US dollar, as measured by Axioma’s US short-horizon fundamental model. In fact, most developed currencies have not seen this level of volatility in at least one year. The Canadian dollar was among the exceptions, sticking close to the low end of its six-month volatility range. Despite the recent rise in its volatility, the Singapore dollar remained the least risky developed currency (at 3.5%), while the pound the riskiest (at 8.5%).

See graph from the Equity Risk Monitors as of 5 March 2020:



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The Axioma Risk Monitor reports use Axioma’s solutions to bring you insights on trends in market and portfolio risk. You can subscribe to both the multi-asset class and equity edition here.

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Qontigo's ROOF Scores were created to quantify market sentiment — bullish or bearish? ROOF is an acronym for Risk-On/Risk-Off market conditions; the Scores are calculated from the factor returns to eight style factors from Axioma’s fundamental factor risk models, plus two indicators of changing market volatility. 

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