Momentum nosedives

Six days into September, we have seen a sharp reversal in Momentum’s performance, especially in the US. Medium-Term Momentum posted month-to-date losses higher than what would have been expected, given the risk forecast at the end of August in all regions Axioma tracks closely, except Australia and Japan. The US reported the largest losses, nearing 3% so far in September, in both of Axioma’s all-cap and small-cap US models.

The table below shows returns through the 9th of September for most factors in a number of Axioma’s medium-term fundamental models. An asterisk indicates that the factor return was outside a two-standard deviation range, based on the risk forecast for the factor at the end of August 2019. The region with the highest return for the factor is highlighted in green, and the one with the lowest is highlighted in pink.

Month-to-Date Factor Performance

Source: Axioma

Despite the sudden drop, the year-to-date return for Momentum remains positive in all geographies, except Japan. Here, Momentum had a poor performance throughout the year, reporting a cumulative year-to-date loss of 4% as of September 9th. Momentum in Australia went against the trend in September, continuing to rise and posting the highest year-to-date return across all regions, higher than 12%.

Momentum's Year-to-Date Cumulative Return

Momentum is not the only factor that saw a reversal in the US. US Growth also experienced a reversal of fortunes from August, posting larger-than-expected losses month to date. On the flip side, Earnings Yield and Value produced month-to-date returns that were two standard deviations above their long-term averages. However, the year-to-date performance remained positive for Growth and negative for Value and Earning Yield in the US, so far.

These previously strong factor bets on Growth and Momentum turning negative and the one on Value turning positive could indicate a turning point for markets. Perhaps investor sentiment is changing regarding future economic growth.

We will continue to report on style factor performance in the days ahead. Check our blog posts and Weekly Equity Risk Monitor emails for updates. Register here to receive our emailed highlights weekly, and click here to be notified of new blog posts.

Diana R. Rudean, PhD

As a member of Axioma's Applied Research Team, Diana R. Rudean generates unique insights into risk trends by consolidating and analyzing the vast amount of data on market and portfolio risk maintained by Axioma. Her research helps clients and prospects better understand and adapt to the evolving risk environment.