What the momentum trade tells us about the stock market

According to Axios, the momentum trade — a strategy built on stocks that have been outrunning the market for about a year — is off to a rough start in the second half. The iShares momentum ETF, up roughly thirty-three percent over the past year against the S and P five hundred's twenty percent, has since dropped more than eleven percent from its peak, briefly crossing into what's typically called a correction. Chip and memory names drove much of the earlier gains, with Micron up more than two hundred percent and Advanced Micro Devices up more than one hundred forty percent. Axios columnist Matt Phillips ties the reversal to interest rates, noting the selloff began in late June after the Federal Reserve, now led by chairman Kevin Warsh, held rates steady and markets started betting on a less dovish path. Research suggests momentum tends to stumble whenever the rate backdrop shifts direction, and that appears to be what's playing out now.

Listen to this story

Hear this and more stories in a personalized audio briefing.

Open The Chonkerton