If you weren’t looking, you wouldn’t know last week was a disaster for a part of the market that has been a leader for years. Momentum stocks got absolutely pummeled at a time when the overall market was rising. It wasn’t the Nasdaq, which most think of when momentum is mentions, but just the Nasdaq leaders that were creamed. Some lost as much as 20% in 4 days. The momentum ETF basket lost a much more tolerable under 2% while the broader market, SP500, climbed more than 1%.
What is just even more interesting is where that money shifted into. If you have been in the game long enough it shouldn’t surprise you the benefactors were the past laggards, value and small caps. As you can see in the chart below, from left to right, is last week’s return on the SP500 (light blue), followed by momentum (magenta), small caps (green), value (blue) and the Nasdaq (red). It may not seem like much but a difference between the winners and losers of more than 6% in just one week is huge and should not be ignored.
Rotation is normal and how the market continues to ramp higher over time so it could be I am making a mountain out of a mole hill here. On the other hand, if this is the start of a new trend, investors would want to know this because what has worked for the past 3-5 years may no longer. The market is sending a message here and it’s up to us to figure out just what it means.