High-momentum S&P 500 stocks lose leadership

Since the end of June, the group of highest-momentum stocks in the S&P 500 has underperformed the index’s lowest-momentum shares by 16.6 percentage points. The outperforming names earlier in the year included semiconductor manufacturers and companies positioned around artificial intelligence products and services.

In the second quarter, covering April through June, the highest-momentum cohort outpaced the lowest-momentum cohort by about 45%. That level of relative performance was the strongest for momentum leaders in roughly 30 years.

The lagging group since late June has included software companies and other sectors that had been out of favor. The change in relative returns unfolded over several weeks after the large second-quarter gap in favor of high-momentum stocks.

Momentum refers to the gap in recent returns between the best-performing and worst-performing stocks. Historical data show periods when high-momentum stocks lead are often followed by stretches when lower-momentum stocks catch up or overtake the leaders.

The current performance gap of 16.6 percentage points is measured from the end of June to the present quarter and reflects a reversal from the 45-percentage-point advantage held by high-momentum names in the prior quarter.