Equities to Hedge Equity Risk

Russ discusses why low vol and quality stocks are exhibiting surprisingly strong performance.

Since the start of earnings season two trends have been noticeable: Stocks have been range-bound and volatility has risen, up around 40% from the early April low. In other words, despite a stellar earnings season, in which more than 85% of companies beat estimates, stocks have mostly churned.

That said, not all equities have struggled. Cyclicals surged in May, led by energy, materials and financials (see Chart 1). Conversely, market segments that thrived last year have struggled. On a one-month basis technology and consumer discretionary shares are down roughly 5%.

Global sector performance – 1 month return as of May 2021

Source: Refinitiv Datastream, MSCI, and BlackRock Investment Institute, as of 5/20/21.Note: The bars show performance in U.S. Dollar terms over the previous months