Momentum out front, but is there a shift afoot?
Main U.S. equity index futures edge green: Nasdaq 100 up ~0.2%
Housing starts, building permits > ests; mortgage index jumps
Euro STOXX 600 index off ~0.3%
Dollar edges red; bitcoin, crude dip; gold up slightly
U.S. 10-Year Treasury yield rises to ~3.68%
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MOMENTUM OUT FRONT, BUT IS THERE A SHIFT AFOOT?
When it comes to major style factors that have historically driven portfolio returns, Momentum is the horse that's leading the pack this year.
However, given that markets are on the cusp of what is expected to be the Fed's first rate cut in 4-1/2 years on Wednesday, and Q3 is nearly complete, it appears to be an especially good time to check in on where all of the style factors currently stand.
Major investing style factors include stocks discounted to their fundamentals (Value), financially-sound companies (Quality), size (Small Caps), stable, lower-risk stocks (Low Volatility), and stocks exhibiting upward price trends (Momentum).
To this, let's add in as separate factors Mid- and Large-Caps, high-growth companies (Growth), and those stocks that provide income (Dividends).
The SPDR S&P 500 ETF Trust SPY.P is up 3.5% quarter-to-date (QTD), bringing its year-to-date (YTD) gain to 18.5%.
Here is a graphic showing YTD factor percentage changes as well as how they have performed vs the SPY (factor/SPY ratio change):
Momentum MTUM.K is out front with a 25.7% YTD advance. It's closely followed by Growth SPYG.P, up 24%. Quality QUAL.K, up 20.4%, is next in line. All of these groups are outperforming the SPY in 2024.
Large Caps SCHX.K are up 18.1%, which puts them just off the SPY's YTD pace.
Low Volatility SPLV.P (+14.1%), Value SPYV.P (+12.5%), Mid-caps IJH.P (+11%), Dividends NOBL.K (+11%), and Small Caps IWM.P (+9.3%) are all positive for the year, but are underperforming the SPY.
However, given recent market gyrations and rotation, this year's winners have slowed down. Momentum and Growth are the biggest laggards so far this quarter, rising just 1.2% and 0.7%. Low Volatility has seen the biggest rise (+10.1%) so far this quarter. This is closely followed by Dividends (+9.9%), and Small Caps (+8.1%). Value is up 7.6% QTD.
In the wake of today's FOMC outcome, traders will be keenly focused on whether recent relative strength shifts accelerate, or reverse, as these style factors continue to jockey for position through the rest of the year.
(Terence Gabriel)
*****
FOR WEDNESDAY'S EARLIER LIVE MARKETS POSTS:
THE UNBEARABLE WRONG-NESS OF FED WATCHING - CLICK HERE
SOFT LANDING TO BENEFIT GROWTH STOCK LAGGARDS - UBS CIO - CLICK HERE
WHAT NEXT AFTER THE FIRST FED CUT? - CLICK HERE
ALL GOOD FOR EURO AREA LIQUIDITY… FOR NOW - CLICK HERE
NOVO WEIGHS, AWAITING THE FED - CLICK HERE
EUROPE BEFORE THE BELL: THE FED, MIDDLE EAST AND UK CPI - CLICK HERE
TRADERS STILL GUESSING IN FINAL FED COUNTDOWN - CLICK HERE
FactorReturns09182024 https://tmsnrt.rs/3Xxr38M
(Terence Gabriel is a Reuters market analyst. The views expressed are his own)
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