Momentum reversed in February, primarily due to rallying Materials stocks. Value and Profitability both performed well.
While most factors performed well during the January sell-off, those providing stability worked the best. Low Volatility, Profitability, and Size were notable outperformers.
Liquidity “consuming” strategies like price momentum are generally considered to be more volatile than liquidity “providing” approaches like value investing.
For the third consecutive year (thus far), quantitative factors worked best within the Materials sector. Energy also saw success as the decline in oil hurt the same stocks as in 2014. Factors were least effective in Health Care and Telecom.
The recent strength in the dollar coincided with a spike in volatility and weakness in risky assets, but the relationship over the last couple years has been tenuous at best.
Small Cap stocks significantly underperformed Large Cap stocks since late March.
This does not only apply to stocks, it applies to just about all risky assets.
The decrease in correlations has been helpful for investors, but the lack of volatility in the measure has arguably been more important.
We don’t think the numbers between now and the Fed’s December meeting will be strong enough to convince it to start tapering this year. No taper until 2014, in our opinion.
A look at prior debt ceiling debates and patterns around resolution dates gives no surprises: markets are weaker in the two weeks before but stronger in the month after a resolution is reached.