Momentum Stocks Dominate for Now, but US Election Uncertainty May Alter Market Sentiment

Momentum stocks continue to lead U.S. equity portfolios in 2024, but uncertainty surrounding the upcoming U.S. elections could shift market sentiment. Betting against momentum and large-cap growth remains unprofitable, as evidenced by factor ETFs. These risk premia have outperformed throughout much of the year, with no clear signs of change, as of trading on October 2.

The iShares MSCI USA Momentum Factor ETF (NYSE: MTUM) has recorded a notable 29.4% year-to-date return, significantly surpassing most other equity factors and outperforming the broad market, represented by the SPDR S&P 500 ETF (SPY), which has gained 20.8% in the same period. In contrast, the weakest performer, the iShares S&P Small-Cap 600 Value ETF (IJS), has only managed a modest 3.7% gain in 2024.

Investors are closely monitoring potential catalysts that could shift these trends, including a possible port strike and rising geopolitical tensions in the Middle East. Although the U.S. stock market has remained largely unaffected thus far, with the S&P 500 Index only slightly below its recent record high, these events could have significant impacts depending on how they evolve. Additionally, perceptions of the upcoming U.S. election outcomes may influence market dynamics.

For now, the technical outlook for MTUM remains positive, with the ETF rebounding swiftly after a summer sell-off, approaching its previous record high.