The Momentum Trade Has Legs

“It can be very expensive to try to convince the markets you are right.”

-Ed Seykota

Over the past two weeks, many friends from both the sell-side and buy-side, as well as clients have asked me “Said the momentum trade MTUM 0.00%↑ is up 5.25% and broke 2021 highs (ATHs) since you mentioned the trade last month, when will it stop?”…My quick response is “IT STILL HAS LEGS”

1.) We broke ATHs the week before CPI (March 8th) and have recovered from the Hot CPI selloff right after the DOVISH FOMC presser.

on March 11th JPM’s Marko Kolanovic came out bearish on the momentum trade “Momentum is a dynamic stock factor that changes its exposure depending on macroeconomic and fundamental conditions,” he said. “As such, it often becomes crowded, followed by an inevitable and often sharp correction.” The basket has bounced up 4.14% since then.

The bearish narrative by equity strategists across Wall Street has continued to grow but at SpearPoint we’re not fighting the trend

2.) There are 3 reasons behind our madness :

1.) Financial conditions are loose and POWELL DOES NOT CARE!
Checkout the FOMC Recap from the previous article

2.) And the most important is the makeup of the momentum basket. The basket is composed of some of the best names that will survive a higher for longer rate environment and will do even better once the fed starts cutting and are primed to take advantage of the multiple Phases of the AI race

Now Let’s break down the Momentum Basket