Are Momentum Stocks Losing Momentum?
Never mind how the U.S. stock market is posting modest year-to-date losses close to 2%. Momentum stocks are up and so is risk taking.
A comparison of the iShares MSCI USA Momentum Factor ETF (NYSEARCA:MTUM) – a good proxy for the risk appetite of bullishly trending stocks – versus the S&P 500 (SNP:^GSPC) shows that momentum stocks have not yet lost their luster. Over the past three months, MTUM has jumped 10.79% compared to a 7.09% rise for the S&P. Among MTUM’s top 10 holdings are tech giants like Apple, Facebook, and Microsoft along with healthcare blue chips like Amgen, CVS Health Corp. and Gilead Sciences.
The chart below also takes this analysis one step further by plotting biotech stocks (NasdaqGIDS:IBB) – a momentum sector – against the same S&P 500 yardstick. Biotechs (NYSE:BBH) have beaten the broader U.S. stock market (NYSEARCA:VOO) easily with a gain of almost 20% over the past three months.
The ProShares Ultra Nasdaq Biotechnology ETF (NasdaqGM:BIB) uses double daily leverage and has soared just over 40% during the past three months.
The fact that momentum stocks have not yet lost favor or momentum is an important data point that gives us a glimpse of the stock market’s current mood.