Losing Momentum
The momentum trade, which has been a pivotal driver of equity markets, appears to be losing steam as we head into Q4 2023. Per the full note from J.P. Morgan, momentum dispersion is currently at its widest since 1990, indicating a potential shift in investor focus towards overlooked sectors. The MSCI USA Momentum Index experienced a notable 43% gain in just a few months but may signal that its robust performance is waning, urging traders to reassess their equities exposure amidst evolving market conditions.
What the desk is arguing
The current analysis suggests that the momentum trade may be reaching its limit as the market grapples with widening performance gaps among stocks. With momentum dispersion at the highest level since 1990, a rotation towards undervalued sectors is anticipated. Per the full note, the strong outperformance of the MSCI USA Momentum Index indicates that this trend is not as sustainable as it once appeared.
Furthermore, J.P. Morgan forecasts that investor interest might shift from high-flying momentum stocks into other areas of the market that have been lagging, creating opportunities in neglected sectors. This shift is evident as overall investor interest is declining even amidst significant gains.
Where it sits in our coverage
Our internal consensus for the EUR/USD is set at a target of 1.075 with a range spanning from 1.04 to 1.12, reflecting differing outlooks among banks on currency pair movements. Specifically:
This position is central within the current consensus, with jpmorgan slightly above the average target while bofa sits below it, indicating a divergence in sentiment regarding the most favorable directional trade in this environment.
How other firms see it
Most firms are cautious, echoing the desk's views on the diminishing strength of the momentum trade. Aligned firms, such as jpmorgan, support the idea that a significant market shift might be underway. Conversely, firms like bofa express skepticism, predicting more downside potential in equity markets.
In the current market climate, equity movements will likely impact currency pairs such as the USD/EUR connection, as shifts in risk sentiment might encourage volatility across major currencies like USD/JPY.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Momentum dispersion at the widest since 1990 suggests a potential shift towards undervalued sectors.
- 02The MSCI USA Momentum Index has seen a 43% gain from March to June, indicating initial strong performance but potential waning interest.
- 03J.P. Morgan forecasts gold prices to average $6,000/oz by Q4 2026, contrasting current diminished investor interest in gold.
- 04Overall investor focus may need to diversify as market conditions evolve, impacting momentum-driven strategies.
Market implications
Traders should watch for signs of sector rotation, which could manifest through shifts in equity performance, particularly in lagging sectors. A reversal below the 200-day moving average in key indices could signal further downside for current momentum trades.
Risks to this view
An unexpected pivot from the Federal Reserve towards aggressive rate hikes in response to inflation pressures could destabilize existing equity momentum, prompting a rapid outflow from risk assets as investors seek safety.
Will the momentum trade continue driving the stock market? ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ View online Insights In Context * Momentum has been driving the stock market to new highs -- but will this last? *Gold prices have rallied and then retreated this year. What's the latest forecast? * Discover the factors fueling the pace and depth of AI adoption among small businesses. Not a subscriber?
Sign up for In Context. PRIVATE BANKING Is the momentum trade over? It's a simple trade: buy what's been winning, sell what's been losing and assume the trend continues.
However, with momentum dispersion -- or the gap in performance between the highest- and lowest-performing stocks -- at its widest since 1990, a rotation into overlooked sectors could soon emerge. FIND OUT BY THE NUMBERS The MSCI USA Momentum Index gained 43% between March 30 and June 3, significantly outperforming the broader market. Despite declining investor interest, J.P.
Morgan Global Research forecasts gold prices to average $6,000/oz by the final quarter of 2026. Although small businesses are paying for a wider variety of AI services, monthly spend decreased from about $50/month in 2019 to $20-30/month in 2025. RESEARCH Investor interest in gold has declined _"Gold is stuck in a bit of a technical no-man's land, trudging above the 200-day moving average around $4,340/oz.
Amid this sideways plod, and with growing worries that the Fed might have to respond to energy-driven inflation with hikes, gold is on the back burner for most investors at the moment."_ Greg Shearer, head of Base & Precious Metals Strategy, J.P. Morgan WILL THIS CONTINUE? JPMORGANCHASE INSTITUTE Are small businesses really using AI?
Small businesses have historically lagged behind larger enterprises in adopting new technologies due to resource constraints and integration challenges, but many are now embracing AI thanks to lower entry costs. EXPLORE THE DATA jpmorgan.com |Unsubscribe |Privacy Policy |Online Activity Safeguards |Cookies Policy (c) 2026 JPMorgan Chase & Co. All rights reserved.
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Losing Momentum