Home etftrends.com Looking Back at Equity Factors in Q1 2024 With WisdomTree

Looking Back at Equity Factors in Q1 2024 With WisdomTree

By Pierre Debru
Head of Quantitative Research & Multi Asset Solutions at WisdomTree in Europe

This year started on a strong note, with global equity markets gaining 8.9%.1 The initial focus was on artificial intelligence, its growth potential and its impact on corporate profitability. However, with better-than-expected economic data being published in the U.S., but also in Europe and China, market confidence grew, leading to a regional broadening of the bull market. Europe closed 7.6%1 up, quite close to the 10.3%1 of the U.S. The only weakness remains in Asia, leading to emerging markets returning only 2.4%.1

This instalment of the WisdomTree Quarterly Equity Factor Review aims to shed some light on how equity factors behaved during this first quarter and how this may have impacted investors’ portfolios.

  • Overall, quality and growth continued to do well in developed markets. However, momentum took the lead, returning double-digit outperformance in the U.S. and globally.
  • Small-cap equities suffered from the postponement of rate cuts. After a strong Q4, they posted the deepest underperformance in Q1.
  • In emerging markets, momentum was also strong, but growth led the way, with Information Technology stocks and new economy companies benefiting the most from the better-than-expected economic news.

Performance in Focus: Continued Bull Run for Q1

In Q1, the MSCI World (+8.9%) and the MSCI USA (+10.3%) indexes continued to perform very strongly. The impact of the AI megatrend continued to be felt, with Nvidia gaining 82.5% during the quarter, for example. But the main news was on the economic front. The U.S. economy remained robust, leading to the postponement of rate cuts to later in the year. Economic data from Europe and China, while not amazing, was better than expected, leading to good performance in those markets as well.

Overall, this led to some broadening in terms of the source of market performance. Only four out of the Magnificent 7 beat the S&P 500 this quarter, for example. Only Nvidia and Meta posted significant outperformance. The impact on factors was also clear as it was a difficult quarter in which many factors underperformed, as well as some rotation.

  • In global developed markets, growth and quality continued to outperform, with the exception of Europe, where quality did not do as well.
  • Momentum was the strongest factor this quarter. It outperformed in all regions, posting double-digit outperformance in the U.S. and globally.
  • The fortune of small-cap equities changed radically from being the best factor in Q4 to being the worst one in Q1.
  • In developed markets overall, high dividend, min volatility and value suffered the bulk of the underperformance.
  • In emerging markets, momentum was also strong, but growth led the way, with Tech stocks and new economy companies benefiting the most from the better-than-expected economic news.

Figure 1: Equity Factor Outperformance in Q1 2024 across Regions

Market Breadth Is Improving: A Positive Sign for the Current Bull Market

In Q1, U.S. equities returned their second consecutive double-digit returns. While this may seem like nothing in the context of the last 18-month rally, it is, in fact, quite rare. This is only the nineteenth time since 1927 that this happened (i.e., 5% of the time). Interestingly enough, the performance in the following six months has been positive 16 times out of 18, and the performance in the following 12 months has been positive 15 times out of 18.

Figure 2: S&P 500 Performance Following Two Consecutive Quarters of Double-Digit Returns

Investors have focused on the market’s narrowness since early 2023 and the emergence of the Magnificent 7 narrative. As discussed earlier, Q1 showed a divergence in the performance of those seven mega caps, with Tesla and Apple showing some weakness. To assess the evolution of the market’s breadth this quarter, in figure 3, we look at the advance/decline line for the S&P 500.

The advance/decline line is a cumulative indicator, calculated by adding the difference between the number of advancing and declining stocks on a daily basis. The indicator goes up if more stocks advance rather than decline. It helps investors assess how wide the market is. In a rising market, if the indicator is going up, it means that the market is wide and that a majority of stocks are going up with the market. If the indicator is down, though, it shows that only a minority of stocks are driving the market up, indicating narrowness and a potential weakness of the rally.

Figure 3: S&P 500 Advance/Decline Line

It is clear from figure 3 that the market breadth has been improving since late 2023 and that the current bull market is now quite well supported.

Valuations Decreased in the U.S. in Q1

In Q1 2024, developed markets became mostly more expensive. However, small caps and growth stocks became cheaper. The drivers for those moves varied, though. The valuations of small caps declined due to negative performance, while growth stocks’ valuations declined due to increasing earnings.

Valuations in the U.S. mostly declined except in value and high dividend. On the contrary, in Europe, valuations increased almost across the board.

Figure 4: Historical Evolution of Price-to-Earnings Ratios of Equity Factors

Looking Forward to Q2 2024

Economies have been showing a lot of robustness, and while “higher for longer” will continue a bit longer than expected, rate cuts are coming. These easier monetary conditions, combined with improving economies and the broadening markets, should continue to provide a tailwind to equity markets. However, with valuations at relatively high levels and the upcoming U.S. presidential election, risks remain ever so present. A balanced approach to equity investment that combines upside participation and downside protection could remain a safe choice for investors.

Pierre Debru is an employee of WisdomTree UK Limited, a European subsidiary of WisdomTree Asset Management Inc.’s parent company, WisdomTree, Inc.

1 Sources: WisdomTree, Bloomberg, 12/31/23–3/31/24. Historical performance is not an indication of future performance and any investments may go down in value.

Originally published by WisdomTree on April 18, 2024. 

For more news, information, and analysis, visit the Modern Alpha Channel.


U.S. investors only: Click here to obtain a WisdomTree ETF prospectus which contains investment objectives, risks, charges, expenses, and other information; read and consider carefully before investing.

There are risks involved with investing, including possible loss of principal. Foreign investing involves currency, political and economic risk. Funds focusing on a single country, sector and/or funds that emphasize investments in smaller companies may experience greater price volatility. Investments in emerging markets, currency, fixed income and alternative investments include additional risks. Please see prospectus for discussion of risks.

Past performance is not indicative of future results. This material contains the opinions of the author, which are subject to change, and should not to be considered or interpreted as a recommendation to participate in any particular trading strategy, or deemed to be an offer or sale of any investment product and it should not be relied on as such. There is no guarantee that any strategies discussed will work under all market conditions. 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 results. This material should not be relied upon as research or investment advice regarding any security in particular. The user of this information assumes the entire risk of any use made of the information provided herein. Neither WisdomTree nor its affiliates, nor Foreside Fund Services, LLC, or its affiliates provide tax or legal advice. Investors seeking tax or legal advice should consult their tax or legal advisor. Unless expressly stated otherwise the opinions, interpretations or findings expressed herein do not necessarily represent the views of WisdomTree or any of its affiliates.

The MSCI information may only be used for your internal use, may not be reproduced or re-disseminated in any form and may not be used as a basis for or component of any financial instruments or products or indexes. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each entity involved in compiling, computing or creating any MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties. With respect to this information, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including loss profits) or any other damages (www.msci.com)

Jonathan Steinberg, Jeremy Schwartz, Rick Harper, Christopher Gannatti, Bradley Krom, Kevin Flanagan, Brendan Loftus, Joseph Tenaglia, Jeff Weniger, Matt Wagner, Alejandro Saltiel, Ryan Krystopowicz, Brian Manby, and Scott Welch are registered representatives of Foreside Fund Services, LLC.

 WisdomTree Funds are distributed by Foreside Fund Services, LLC, in the U.S. only.

You cannot invest directly in an index.

newETFs.io respects the hard work of others and gives all credit to the remarkable folks at ETFTrends.com. This excerpt/article was pulled from their RSS feed; click here to view the original. Please note that on occasion, the RSS feed will not have the author. When this happens this site defaults the author to "News". Make no mistake, this excerpt/article was not created by newETFs.io, it was simply shared with you.