GDP in the US fell 0.9% in the second quarter, marking two consecutive quarterly reports of negative growth.1 The 2s/10s spread started the month flat but became increasingly inverted: a common indicator of looming recession.2

Many in the investment community consider two quarters of negative GDP growth a technical recession, but the NBER has not yet declared it so.3 Federal Reserve Chair Jerome Powell agreed with the NBER, citing a strong labor market as one counterpoint.4 

Among this uncertain backdrop, let's take a look at common risk factor performance in July from Venn’s Two Sigma Factor Lens.

Source: Venn by Two Sigma. The median and percentile columns measure the performance of each factor in the  Two Sigma Factor Lens relative to the entire history of the factor in USD, using monthly data for the period March 1995 - July 2022


Markets Preferred to See the Positives in July

Despite mixed economic data, equity markets rebounded in July. One positive sign for the month was the resilience of US corporate earnings. As of July 29th, 56% of S&P 500 companies had reported results. Of those that reported, 73% exceeded EPS expectations, and 66% exceeded revenue expectations.5 Additionally, markets have seemed to like the sober stance of central banks amid high inflation, including the ECB’s higher-than-expected hike of 50 bps on July 21st.6


Risk Factors Continue to Respond to US Central Bank Policy

While the 75 bps Fed hike on July 27th came with only a few days to go in the month, some risk factors responded strongly. This includes the two factors we view as typically the most impactful for portfolios: Equity and Interest Rates.


Source: Venn by Two Sigma. Factor performance analyzed from 7/1/2022–7/26/2022 and 7/27/2022–7/29/2022


  • Venn’s Equity Factor and Interest Rates Factor (long bonds) rallied 3.83% and 0.90% in the final 3 days of the month respectively. Powell’s comments caused markets to reduce the projected December 2023 Fed funds rate by about 20 bps.7 Equities and bonds both seemed to appreciate dovish commentary on future hikes.8
    • Trend Following reversed course in July after acting as a successful market hedge YTD.
      • The factor was hurt by short positions in rallying equity and fixed income markets.
    • The Value Factor continued to give back YTD gains in July both before and after the Fed announcement.
      • Inflation potentially peaking over the short-term and a lower than expected rate path may have contributed to negative value performance in July.9
    • The trend of higher correlations between global stocks and bonds has been persistent recently. Historically these two factors have had a correlation of -0.16 but have exhibited a positive correlation of 0.14 YTD.10


July 2022 Marks the 3rd Highest Rolling 1-Year Correlation Between Venn’s Equity and Interest Rate Factors Since 1996

Source: Venn, by Two Sigma. Period begins March 1995– July 2022

  • Venn's Local Inflation Factor accounts for exposure to Equity, Interest Rate, Credit and Commodity movements, and finished meaningfully positive in July.
    • This factor captures returns to a local-currency inflation hedge. This should benefit when inflation surprises to the upside, but otherwise will tend to lose money due to being short the inflation risk premium.11
    • While markets interpreted dovish comments from the Fed to be good for equities and bonds, 10-year breakevens also spiked. This indicated a rise in long-term inflation expectations, which benefited the Local Inflation Factor.

July Cumulative Return of the Bloomberg Barclays Us 10-Year Breakeven Index


Source: Venn by Two Sigma.



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References to the Two Sigma Factor Lens and other Venn methodologies are qualified in their entirety by the applicable documentation on Venn.











10 Correlation over full history begins March 1, 1995.

11 The inflation risk premium is the compensation that nominal bond investors might require for their exposure to risk of inflation fluctuations.



References to the Two Sigma Factor Lens and other Venn methodologies are qualified in their entirety by the applicable documentation on Venn.

This article is not an endorsement by Two Sigma Investor Solutions, LP or any of its affiliates (collectively, “Two Sigma”) of the topics discussed. The views expressed above reflect those of the authors and are not necessarily the views of Two Sigma. This article (i) is only for informational and educational purposes, (ii) is not intended to provide, and should not be relied upon, for investment, accounting, legal or tax advice, and (iii) is not a recommendation as to any portfolio, allocation, strategy or investment. This article is not an offer to sell or the solicitation of an offer to buy any securities or other instruments. This article is current as of the date of issuance (or any earlier date as referenced herein) and is subject to change without notice. The analytics or other services available on Venn change frequently and the content of this article should be expected to become outdated and less accurate over time. Any statements regarding planned or future development efforts for our existing or new products or services are not intended to be a promise or guarantee of future availability of products, services, or features.  Such statements merely reflect our current plans.  They are not intended to indicate when or how particular features will be offered or at what price.  These planned or future development efforts may change without notice. Two Sigma has no obligation to update the article nor does Two Sigma make any express or implied warranties or representations as to its completeness or accuracy. This material uses some trademarks owned by entities other than Two Sigma purely for identification and comment as fair nominative use. That use does not imply any association with or endorsement of the other company by Two Sigma, or vice versa. See the end of the document for other important disclaimers and disclosures. Click here for other important disclaimers and disclosures.

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