The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite all finished down last week as traders digested the latest minutes from the Federal Reserve meeting in March. The minutes showed the Fed initially wanted to increase interest rates by 50 basis points but instead opted for a smaller 25-basis-point hike citing the potential fallout from the war in Ukraine. In addition, the FOMC clarified the pace of monetary tightening as the minutes noted that it would shrink assets by closer to $95 billion a month. The news of a more hawkish Fed sent tremors throughout the markets as they may need to act more forcefully to tame inflation.
Chinese officials were forced to extend a lockdown in the mainland financial hub of Shanghai last week as cases of COVID-19 hit new highs. Daily cases hit 23,107 on April 7, when as recently as February cases in mainland China averaged less than 200 per day. While the impact of the lockdowns has yet to show up in official economic data, unconventional high-frequency indicators are showing a significant slowdown. A daily mobility index produced by online map and search company Baidu showed that movement between cities was already 48% below its level from a year ago. Subway trips in eight major cities were 34% lower than a year ago while Shanghai was showing a 93% drop. Express deliveries by courier companies are down 27% from their level a year ago while an index of road freight is down 12.8%. These high-frequency indicators all suggest that a slowdown in economic activity is likely on the way. This is unfortunate news for an economy that is still plagued by the effects of a sharp downturn in its critical property sector. More than two dozen real estate companies listed in Hong Kong failed to file audited financial results by the annual deadline of March 31 , reflecting the severe difficulties some are experiencing. Those that did manage to report results showed dramatic decreases in profits and sales. Despite government efforts to dampen the fallout of its crackdown on developer debt, China’s 100 largest real estate developers showed a 53% decline in sales in March compared to last year. The volume of land sales across 300 Chinese cities over the first three months of 2022 was down 60% compared to the same period last year, suggesting there is still no recovery coming down the development pipeline.
FactorResearch conducts an ongoing analysis of the performance of several of the most widely recognized equity factors backed by academic research. These factors include value, size, momentum, low volatility, and quality. The performance of these factors is evaluated by constructing long-short portfolios with neutral equity beta diversified across all global developed markets. Over the first quarter of this year, value was by far the strongest performer with a return of 10.1%, though it should be noted that most of this outperformance occurred in January. Low volatility returned 1.7% YTD while momentum returned 0.7%. Size was roughly flat for the quarter with a slight loss of 0.1%. That reflects a relative improvement compared to recent years, when large capitalization stocks have outpaced small caps. The quality factor, which correlates with profitable companies with strong balance sheets, rallied during the uncertainty after the Russian invasion of Ukraine, but then proceeded to give up those gains and lost 2% over the quarter. Notably, many of these long-short factor portfolios outpaced long-only global equities, which as defined in this study have fallen 5.8% this year.
The representations and opinions herein are the opinions and views of EQIS Capital Management, Inc. ("EQIS"), a registered investment adviser. The information is believed to be reliable but is not guaranteed by EQIS. The information contained herein is for informational and comparison purposes only. The representations and opinions herein are the opinions and views of EQIS. When applicable, sources used in forming EQIS’s opinion are cited, however other sources may be available which contradict EQIS’s opinion, process and methodology. While EQIS believes the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future events. This information should not be relied upon as research or investment advice. EQIS does not provide legal or tax advice.
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