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Mid-cycle adjustment to factor returns

06 August 2019

Research Signals - July 2019

Adding to increasing concerns surrounding the year-long US-China trade dispute and its effect on the global economy, investors' hopes diminished that the Federal Reserve's first rate cut in a decade was the start of an easing cycle. However, for the month, the momentum that pushed US stocks to all-time highs, prior to the post-Fed press conference reversal, helped support Price Momentum factors, contributing to yet another cycle between investor style preferences (Table 1). In the meantime, the J.P.Morgan Global Manufacturing PMI signaled a third consecutive month of downturn in the global manufacturing sector as international trade volumes continued to contract, setting global markets up for another cycle of volatility.

  • US: Large caps cycled between momentum and value factors once again, with strong spreads associated with Rational Decay Alpha, while TTM EBITDA-to-Enterprise Value lagged
  • Developed Europe: Strong results were posted by Rational Decay Alpha, whereas Industry Relative TTM Dividend Yield and Inventory Turnover Ratio sat at the opposite extreme
  • Developed Pacific: Small cap stocks, captured by Natural Logarithm of Market Capitalization, were highly rewarded in markets outside Japan
  • Emerging markets: A broad representation of factors outperformed, including 3-M Revision in FY2 EPS Forecasts, Natural Logarithm of Market Capitalization and Asset Quality Index

Table 1

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