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<p><span style="color: #ff0000;"><strong><a style="color: #ff0000;" href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4080705">Combining Factors</a></strong></span><br/>Christoph Reschenhofer (Vienna University of Economics and Business)<br/><strong>July 2022</strong><br/><em>This paper examines the often-overlooked intersection of empirical research and practical application in factor portfolio construction. The traditional academic focus on covariances (or beta exposure) contrasts sharply with the characteristics-based scoring approaches favored by practitioners. This study seeks to explore how to optimally combine firm-level characteristics to create a multi-factor portfolio. Findings suggest that these diversified portfolios experience lower volatility and higher returns after costs compared to both the market and single factor portfolios. Moreover, factors like return, risk tolerance, and turnover exhibit noteworthy sensitivity to selected buy- and sell-thresholds. Lastly, while we identify ideal weights for specific factor characteristics, the 1/N factor portfolio continues to present substantial challenges as a benchmark.</em></p>
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By James Picerno | <a href="https://www.capitalspectator.com/research-review-5-august-2022-multi-factor-strategies/" title="7:15 am" rel="bookmark"><time class="entry-date" datetime="2022-08-05T07:15:40-04:00">August 5, 2022</time></a>
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<p>* China <a href="https://apnews.com/article/taiwan-china-asia-beijing-b252479810add6a225fa1e4a6d441983">continues</a> to carry out provocative military exercises around Taiwan<br/>* China <a href="https://www.cnbc.com/2022/08/05/china-sanctions-us-house-speaker-nancy-pelosi-over-trip-to-taiwan.html">imposes sanctions</a> on US House Speaker Pelosi following her visit to Taiwan<br/>* A <a href="https://www.wsj.com/articles/stocks-summer-rally-fueled-by-drop-in-bond-yields-11659663309?mod=hp_lead_pos2">sharp decline</a> in longer-term bond yields boosts stock market recovery<br/>* Poll results indicate that while Americans may feel downbeat, they retain optimism regarding the labor market: <a href="https://www.momentive.ai/en/blog/nyt-july-2022-cci/">poll finds</a><br/>* The Bank of England <a href="https://www.bbc.com/news/business-62405037">warns</a> of an impending recession in the UK<br/>* US jobless claims <a href="https://www.cnbc.com/2022/08/04/us-weekly-jobless-claims-.html">resume an upward trend,</a> approaching an 8-month high:</p>
<p><a href="https://www.capitalspectator.com/wp-content/uploads/2022/08/claims.05aug2022.png"><img fetchpriority="high" decoding="async" class="alignnone size-full wp-image-18487" src="https://www.capitalspectator.com/wp-content/uploads/2022/08/claims.05aug2022.png" alt="" width="645" height="419" /></a></p>
<p> <a href="https://www.capitalspectator.com/macro-briefing-5-august-2022/#more-18486" class="more-link">Continue reading <span class="meta-nav">→</span></a></p>
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By James Picerno | <a href="https://www.capitalspectator.com/macro-briefing-5-august-2022/" title="6:22 am" rel="bookmark"><time class="entry-date" datetime="2022-08-05T06:22:03-04:00">August 5, 2022</time></a>
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<p>The stock market has recently shown signs of recovery, yet year-to-date performance continues to be marked by significant losses. Analyzing equities through a factor-based lens, 2022 has revealed a varied spectrum of declines. Remarkably, the least affected strategies have been those focused on high dividends and value, according to a range of proxy ETFs as of August 3.</p>
<p> <a href="https://www.capitalspectator.com/high-dividend-yield-and-value-are-2022s-top-us-equity-factors/#more-18481" class="more-link">Continue reading <span class="meta-nav">→</span></a></p>
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By James Picerno | <a href="https://www.capitalspectator.com/high-dividend-yield-and-value-are-2022s-top-us-equity-factors/" title="7:48 am" rel="bookmark"><time class="entry-date" datetime="2022-08-04T07:48:34-04:00">August 4, 2022</time></a>
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<p>* China <a href="https://www.wsj.com/articles/chinas-military-launches-live-fire-exercises-around-taiwan-11659600560?mod=hp_lead_pos1">conducts</a> live-fire military drills in the vicinity of Taiwan<br/>* The US Senate <a href="https://www.npr.org/2022/08/04/1115537908/u-s-senate-approves-finland-and-sweden-for-membership-into-nato">approves</a> the addition of Finland and Sweden to NATO<br/>* US factory orders reveal <a href="https://www.reuters.com/markets/us/us-factory-orders-rise-solidly-june-beat-expectations-2022-08-03/">solid growth</a> for June<br/>* Global economic growth <a href="https://www.pmi.spglobal.com/Public/Home/PressRelease/c7fe1da9507b455f8fff6ac6bf806eb2">slows</a> to a two-year low in July according to PMI survey results<br/>* OPEC <a href="https://www.cnn.com/2022/08/03/energy/opec-meeting-september-output/index.html">agrees</a> on a slight increase in oil production<br/>* The S&P US Services PMI <a href="https://www.pmi.spglobal.com/Public/Home/PressRelease/4b3fdf62b6b14b24b4a805d3a48a8ff4">indicates</a> contraction in July, yet…<br/>* The ISM Services Index <a href="https://www.reuters.com/markets/us/us-service-sector-unexpectedly-picks-up-july-price-growth-slows-ism-survey-2022-08-03/">suggests</a> modest growth in July:</p>
<p><a href="https://www.capitalspectator.com/wp-content/uploads/2022/08/services.pmi_.04aug2022.png"><img decoding="async" class="alignnone size-full wp-image-18479" src="https://www.capitalspectator.com/wp-content/uploads/2022/08/services.pmi_.04aug2022.png" alt="" width="379" height="214" /></a></p>
<p> <a href="https://www.capitalspectator.com/macro-briefing-4-august-2022/#more-18478" class="more-link">Continue reading <span class="meta-nav">→</span></a></p>
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By James Picerno | <a href="https://www.capitalspectator.com/macro-briefing-4-august-2022/" title="6:36 am" rel="bookmark"><time class="entry-date" datetime="2022-08-04T06:36:39-04:00">August 4, 2022</time></a>
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<p>The US economy is showing signs of slowing down, raising concerns of an impending recession. If the current economic expansion reaches its conclusion soon (if it is still ongoing), indicators suggest that the subsequent recovery in personal income will lag significantly behind all other business cycles since 1970.</p>
<p> <a href="https://www.capitalspectator.com/us-personal-income-barely-recovered-in-the-economic-expansion/#more-18472" class="more-link">Continue reading <span class="meta-nav">→</span></a></p>
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By James Picerno | <a href="https://www.capitalspectator.com/us-personal-income-barely-recovered-in-the-economic-expansion/" title="8:03 am" rel="bookmark"><time class="entry-date" datetime="2022-08-03T08:03:24-04:00">August 3, 2022</time></a>
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<p>* House Speaker Pelosi’s visit to Taiwan <a href="https://www.cnbc.com/2022/08/03/pelosis-trip-to-taiwan-makes-matters-worse-for-us-and-china-relations.html">heightens</a> tensions between the US and China<br/>* China’s military exercises <a href="https://www.telegraph.co.uk/world-news/2022/08/03/nancy-pelosi-taiwan-visit-china-invade-us-speaker-flight/">could effectively serve</a> as a military blockade of Taiwan<br/>* The China Composite PMI, acting as a GDP indicator, <a href="https://www.pmi.spglobal.com/Public/Home/PressRelease/bf123c3ce0d3472eb698bcdc162644cc">dropped</a> in July but still reflects robust growth<br/>* Survey data from the Eurozone <a href="https://www.pmi.spglobal.com/Public/Home/PressRelease/7465f04f509f45919f8767dcdf8e4c64">indicates</a> that the currency bloc fell into recession in July<br/>* Uncertainty <a href="https://www.reuters.com/technology/us-eyes-new-china-chip-curbs-turmoil-looms-global-market-2022-08-03/">surrounds</a> the global semiconductor market as the US considers new restrictions on China<br/>* Household debt <a href="https://www.cnbc.com/2022/08/02/household-debt-tops-16-trillion-as-inflation-surges-and-rates-rise.html">surpassed</a> $16 trillion in Q2 for the first time<br/>* Gasoline prices in the US <a href="https://www.wsj.com/articles/gas-prices-u-s-decline-oil-demand-11659474346?mod=hp_lead_pos4">are steadily decreasing,</a> approaching $4 a gallon<br/>* Job openings in the US <a href="https://finance.yahoo.com/news/u-job-openings-fall-june-141339113.html">dropped</a> to a nine-month low in June:</p>
<p><a href="https://www.capitalspectator.com/wp-content/uploads/2022/08/jolts.03aug2022.png"><img decoding="async" class="alignnone size-full wp-image-18469" src="https://www.capitalspectator.com/wp-content/uploads/2022/08/jolts.03aug2022.png" alt="" width="648" height="402" /></a></p>
<p> <a href="https://www.capitalspectator.com/macro-briefing-3-august-2022/#more-18468" class="more-link">Continue reading <span class="meta-nav">→</span></a></p>
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By James Picerno | <a href="https://www.capitalspectator.com/macro-briefing-3-august-2022/" title="6:49 am" rel="bookmark"><time class="entry-date" datetime="2022-08-03T06:49:54-04:00">August 3, 2022</time></a>
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<p>The anticipated long-term return for the Global Market Index (GMI) currently stands slightly below its trailing 10-year performance up to July, according to three different forecasting models. The main takeaway is the importance of tempering expectations for multi-asset-class strategies in comparison to the previous decade.</p>
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By James Picerno | <a href="https://www.capitalspectator.com/total-return-forecasts-major-asset-classes-2-august-2022/" title="7:11 am" rel="bookmark"><time class="entry-date" datetime="2022-08-02T07:11:14-04:00">August 2, 2022</time></a>
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<p>* US House Speaker Nancy Pelosi <a href="https://www.cnn.com/2022/08/01/politics/nancy-pelosi-taiwan-visit/index.html">is expected</a> to visit Taiwan against China’s warnings<br/>* Chinese warplanes <a href="https://www.cnbc.com/2022/08/02/chinese-warplanes-buzz-line-dividing-taiwan-strait-reuters.html">approach</a> the dividing line in the Taiwan Strait prior to Pelosi's arrival<br/>* US construction spending <a href="https://finance.yahoo.com/news/u-construction-spending-dives-june-142723991.html">fell</a> in June, largely due to a significant decline in homebuilding<br/>* Global Manufacturing PMI <a href="https://www.pmi.spglobal.com/Public/Home/PressRelease/928c283195bd4965b659a11718f1a7ce">dropped</a> to a two-year low but still indicates growth<br/>* The US Manufacturing PMI is at its <a href="https://www.pmi.spglobal.com/Public/Home/PressRelease/928c283195bd4965b659a11718f1a7ce">lowest</a> level in two years but remains above neutral<br/>* The ISM Manufacturing Index <a href="https://www.prnewswire.com/news-releases/manufacturing-pmi-at-52-8-july-2022-manufacturing-ism-report-on-business-301596347.html">edged down</a> in July yet continues to suggest growth:</p>
<p><a href="https://www.capitalspectator.com/wp-content/uploads/2022/08/ism.02aug2022.png"><img loading="lazy" decoding="async" class="alignnone size-full wp-image-18464" src="https://www.capitalspectator.com/wp-content/uploads/2022/08/ism.02aug2022.png" alt="" width="378" height="218" /></a></p>
<p> <a href="https://www.capitalspectator.com/macro-briefing-2-august-2022/#more-18463" class="more-link">Continue reading <span class="meta-nav">→</span></a></p>
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By James Picerno | <a href="https://www.capitalspectator.com/macro-briefing-2-august-2022/" title="6:09 am" rel="bookmark"><time class="entry-date" datetime="2022-08-02T06:09:44-04:00">August 2, 2022</time></a>
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<p>In July, most major asset classes experienced a rebound, providing some respite after a prolonged period of losses. The underlying challenges that triggered significant declines in global markets—such as the ongoing war in Ukraine, persistent high inflation, rising interest rates, and slowing economic activity—remain. However, for at least one month, market sentiment has seen a brief respite from negativity.</p>
<p> <a href="https://www.capitalspectator.com/major-asset-classes-july-2022-performance-review/#more-18455" class="more-link">Continue reading <span class="meta-nav">→</span></a></p>
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By James Picerno | <a href="https://www.capitalspectator.com/major-asset-classes-july-2022-performance-review/" title="7:45 am" rel="bookmark"><time class="entry-date" datetime="2022-08-01T07:45:09-04:00">August 1, 2022</time></a>
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<p>* Pelosi <a href="https://www.cnn.com/2022/08/01/asia/nancy-pelosi-asia-trip-singapore-intl-hnk/index.html">embarks</a> on an Asia trip amid warnings against visiting Taiwan<br/>* The US <a href="https://asia.nikkei.com/Politics/International-relations/Indo-Pacific/U.S.-deploys-ships-and-planes-near-Taiwan-as-Pelosi-eyes-visit">deploys</a> military assets close to Taiwan in light of Pelosi’s potential visit<br/>* The first grain shipment <a href="https://www.bbc.com/news/world-europe-62375580">leaves</a> Ukraine as part of a deal with Russia<br/>* The manufacturing outlook <a href="https://www.bloomberg.com/news/articles/2022-08-01/asia-factory-activity-tumbles-on-supply-snarls-and-weaker-demand?srnd=premium">deteriorates</a> in both Asia and Europe<br/>* China’s manufacturing output <a href="https://www.cnbc.com/2022/07/31/chinas-manufacturing-pmi-in-july-as-covid-flares-up.html">unexpectedly contracted</a> in July<br/>* Emerging markets <a href="https://www.ft.com/content/35969b19-86db-4197-a419-b4a761094e9a">experience</a> a record stretch of foreign investor withdrawals<br/>* German retail sales <a href="https://www.reuters.com/markets/europe/german-retail-sales-unexpectedly-dip-june-2022-08-01/">dropped</a> nearly 10% in June—the largest annual decline since 1994<br/>* Home price growth in the US is rapidly cooling, with real estate data firm <a href="https://www.cnbc.com/2022/08/01/home-prices-cooled-at-record-pace-in-june-according-to-housing-data-firm.html">reporting</a> findings<br/>* Consumer spending and personal income in the US <a href="https://www.wsj.com/articles/inflation-consumer-spending-personal-income-june-2022-11659059583">increased</a> more than anticipated in June:</p>
<p><a href="https://www.capitalspectator.com/wp-content/uploads/2022/07/pce.01aug2022.png"><img loading="lazy" decoding="async" class="alignnone size-full wp-image-18452" src="https://www.capitalspectator.com/wp-content/uploads/2022/07/pce.01aug2022.png" alt="" width="650" height="450" /></a></p>
<p> <a href="https://www.capitalspectator.com/macro-briefing-1-august-2022/#more-18451" class="more-link">Continue reading <span class="meta-nav">→</span></a></p>
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By James Picerno | <a href="https://www.capitalspectator.com/macro-briefing-1-august-2022/" title="6:50 am" rel="bookmark"><time class="entry-date" datetime="2022-08-01T06:50:06-04:00">August 1, 2022</time></a>
</footer><!-- .entry-meta -->In summary, diverse economic and market dynamics have unfolded recently, reflecting both domestic and global challenges. From geopolitical tensions to economic indicators, the data points highlight a landscape of uncertainty as market participants navigate complex factors that influence decision-making. Understanding these elements is crucial for informed investment strategies moving forward.
