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Short Squeezes Dissipate, Risk-On

Summary
Last week saw a strong risk-on mentality in the market as the retail moved away from the short interest theme.  Sentiment, Beta, and Growth were all bid up aggressively with Z-scores of approximately 2 or higher (see Table 1).  A further sign of risk-on mentality, Quality – as measured by Earnings Quality, Management Quality, and Profitability –sold off meaningfully last week.  Looking at the names in Table 2, the market was focused on the reopening theme (Beta), analyst sentiment (Sentiment), and connectivity and medical (Growth).
Table 1.  Style factor returns and Z-scores for 2/01 - 2/05

Table 2.  Top 20 Exposures for Select Factors

 

Table 3.  Top 20 Exposures of Select Factors
MSCI Factor Resources: COVID Insights Gallery, MSCI Factor Research Blog

In this week’s commentary we will focus on these style factors:
 Short Interest  Explains return differences of stocks based on short interest as a percent of total available to short
 Sentiment  Explains the return differences between stocks based on sell-side analyst revisions and news sentiment
 Growth  Growth looks primarily at long-term (3-5 years) Analyst-predicted earnings growth of a company. Smaller weightings are given   to Sales per Share Growth Rate and EPS growth rate – both metrics taken over the last 5 years. A “growth stock” would be   anticipated to grow at a rate significantly above market average
 Beta  A measure of beta against the MSCI USA.  A positive Beta indicates higher beta than the average stock.
 Management Quality  A company is deemed to have high management quality if it has low growth in assets, low growth in capital expenditures, and   low net equity issuance (more buybacks than share issuance).
 Earnings Quality  This factor looks at earnings from cash earnings versus accruals and the variability of earnings.  A higher Earnings Quality   score indicates less earnings variation and higher cash earnings instead of accruals which have significant management   discretion.
 Profitability  Combines several measures of a stock’s profitability and operating efficiency: Asset Turnover, Gross Profitability, Gross   Margin, and Return on Assets.  Highly profitable companies receive a higher factor score.
 
 

Factors in Focus - Prior Newsletters 
February 3rd, 2021 - Short Interest & Other Factors
December 14th, 2020 - Momentum & Sentiment Behavior in the Rally
November 2020 - Monthly Review
November 23rd, 2020 - Rotations Persist into Thanksgiving
November 16th, 2020 - Vaccine Optimism Crashes Momentum and Drives Value Rotation
November 10th, 2020 - Momentum Sell-Off - What is Next
November 6th, 2020 - Post Election Snap-back
October Month, 2020 - October 2020 Review
October 26th, 2020 - Markets Dazed & Confused
October 12th, 2020 - Markets Cautious, but Optimistic
October 5th, 2020 - Market Consolidation Despite COVID Spike
September 28th, 2020 - Risk Off Mentality Embed Last Week
September 22nd, 2020 - Monday's Sell-Off - What is Safe
September 15th, 2020 - Labor Day Directionless
September 9th, 2020 - Late Summer Sell-Off
August 17th, 2020 - All Quiet on the Factor Front
August 12th, 2020 - Monday's Late Day Sell-Off. Something Bigger?
August 10th, 2020 - Market Breadth & Shifting Winners
August 3rd, 2020 - Factor Winners Take All
July 27th, 2020 - Earnings Quality Pops!
July 20th, 2020 - Momentum & Beta, Earnings Yield Jumps!
July 15th, 2020 - Mid-Week: Beta and Momentum Tug-of-War
July 13th, 2020 - Shift in Factors or More of the Same
July  6th, 2020 - Momentum Swings, Value Churns & Profitability at a Premium
Thank you and please let us know if you are enjoying our newsletter. Have a nice week!

vikas.kalra@msci.com
sales@equitydatascience.com






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