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.

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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.

SPY vs. IBB vs. MTUM

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.

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