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Factor performance cycle inversion

10 September 2019

Research Signals - August 2019

Investors' concerns over trade wars and a downshift in the global economy were reinforced by the August J.P.Morgan Global Manufacturing PMI residing below the neutral 50.0 mark for the fourth consecutive month. A global flight to safety led to an inversion of the US yield curve for the first time since 2007, contributing to another bout of volatile equity markets which coincided with a strong penchant for low risk stocks in many regional markets. However, the momentum trade was able to break out of its recent cyclical pattern, with a second consecutive month of positive performance in August (Table 1).

  • US: After several months of flip flopping, Price Momentum tacked on a second month of outperformance, as captured by Industry-adjusted 12-month Relative Price Strength
  • Developed Europe: The risk off trade was prominent, elevating the performance of 24-Month Value at Risk and 60-Month Beta
  • Developed Pacific: In markets outside Japan, investors took cues from the securities lending markets, with positive performance associated with factors such as Implied Loan Rate
  • Emerging markets: Factor performance at the two extremes was dominated by Price Momentum (e.g., Rational Decay Alpha) at the top and Deep Value (e.g., Book-to-Market) at the bottom

Table 1

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