RESEARCH: MACRO & ECONOMICS

PMI & EQUITY FACTOR PERFORMANCE

  • Value and Size have a positive relationship with the PMI, similar to the S&P 500
  • Indicates that risk sentiment is a core driver of factor performance
  • Investors can consider incorporating variables like the PMI in a risk management framework

EQUITY FACTORS & THE MIGHTY US DOLLAR

  • The US dollar had a slightly negative relationship with the stock market since 1996
  • Some equity factors are more sensitive to changes in the US dollar than others
  • On average the sensitivity is zero, but as often averages are misleading

CORPORATE DEBT IN THE CHINESE STOCK MARKET

  • China exhibits the world’s highest corporate debt as % of GDP
  • However, Chinese stocks are not significantly more levered than U.S. stocks
  • Asset and debt growth has stalled in 2018, likely indicating an economic slowdown

EQUITY FACTORS & INFLATION

  • Factor performance is impacted by inflation and deflation
  • An inflationary environment is more attractive for most factors
  • The change in inflation has been most meaningful for the Size factor

EQUITY FACTORS & GDP GROWTH

  • Economic cycles have a clear impact on factor performance
  • Some factors show pro-cyclical while others highlight anti-cyclical characteristics
  • Given that real GDP is not published in real-time, it is unlikely effective for factor selection

FACTORS & INTEREST RATES

  • There are no consistent relationships between Value, Size, Momentum and interest rates
  • Applies to high and low and increasing and decreasing rate environments
  • Investors shouldn’t be too concerned about factor exposure and rising rates, more about very low rates

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