The iShares MSCI USA Momentum Factor ETF (MTUM) is up 25% this year. It was up 33% in 2024.
Money flows to where it’s treated best.
That’s the point.
While many investors are out there wasting their time trying to be smarter than the market, obsessed with their “fundamentals,” we’re much more focused on the flow of money.
Remember, the only way anyone gets paid around here is to sell things at higher prices than where we buy them.
The underlying companies and their businesses are just a distraction, in my experience.
USA Momentum Hits New All-Time Highs
Here’s MTUM breaking out this summer to new all-time highs:
When this index is doing well, how bad could things be for the overall health of the stock market?
You’re looking at a 30% weighting in U.S. Technology stocks, 17% Financials, and 12% Industrials.
These are the sectors you want to see leading during a bull market. And these are the sectors that have been driving the U.S. stock market to new all-time highs.
Small-Cap Momentum Hits New All-Time Highs
We’ve been talking about small-caps hitting new all-time highs since last week. We expected money to rotate into this group, but it’s happening more aggressively than I thought.
That’s a good thing.
Look at the Invesco S&P SmallCap Momentum ETF (XSMO) closing at new all-time highs last week:
Like its large-cap counterparts, this index is also being driven by exposure to offensive sectors – 20% Financials, 17% Industrials, 15% Consumer Discretionary, and 13% Technology.
It’s not the economy. It’s not your president. It’s not the fun-for-mentals.
There is more demand for these stocks than there is supply of them. If you’ve ever taken an economics class, you know these forces drive prices higher.
It’s just math.
And it’s not just American math. You’re seeing stocks with high momentum breaking out around the world as well.
Here is the iShares MSCI International Momentum ETF (IMTM) hitting new all-time highs this week – driven by large exposure to Financials and Industrials:
The countries driving this index to its highest levels in history include Germany (16%), Japan (14%), the UK (13%), Canada (13%), Switzerland (7%), France 6%), Australia (6%), and some more Europe after that to finish up the list.
These are the most important countries in the world – and they are driving this index higher.
When someone tells you it’s only seven stocks driving the market, you have my permission to smack them over the head. Tell them I sent you.
The last thing I want to mention is that this has nothing to do with “trading.”
We all know that angry curmudgeon who thinks the market needs to care about what they have to say. And they get very upset when the market laughs off their theories.
We’ve all seen them. It makes them sad when the market keeps going up in price while they keep warning you it’s not going to end well.
(lol… not going to end well. The worst of offenders love using that one).
This is more about investing and more about a happy lifestyle than it is about “trading.”
This is not about “short-term swings.” This is about identifying primary trends and riding them.
Just because what you think is important is not what the market thinks is important doesn’t mean the market is wrong. It just means you’re doing it wrong.
Price is what pays. In the short-term, maybe. But most definitely over the long-term. Trends persist.
The longer your time horizon, the more important these primary trends become.
And the more dangerous they are to fight.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs