May 16, 2025
The S&P 500 continues to make a bullish pivot as May progresses. Flows into safe haven from February through mid-April have reversed. Investors are now allocating to risk on exposures with a clear Growth tilt while sectors that led during the 2023-2024 uptrend have re-emerged as near-term leadership.
This week, we’re examining the cross section between factor and sector leadership in the Large Cap. space.
Growth vs. Value
We set our bullish reversal lines in the sand a month ago on the thesis that recover would be accompanied by Growth stock outperformance (chart below). The chart below shows Large and Mega. Cap Value v.s Growth. Growth stocks did indeed break out above our initial bull reversal threshold and now they have reached their next pivot as both Growth and Value are on the cusp of new YTD highs and lows respectively. New highs for Growth would reconfirm the bull trend, though we would expect some backing and filling in the near-term before we get there.
Momentum, High Beta, Low Vol.
High-beta vs. Low Vol. is showing a similar dynamic to Growth vs. Value as the former should be expected to outperform in a recovery. Momentum as proxied by the iShares MSCI USA Momentum ETF (MTUM) has been resilient this year and is out to new YTD highs relative to the S&P 500 as we start May. The positive divergence observed in the MTUM ETF vs. the SPHB ETF in March was a bullish “tell” indicating selling exhaustion and rotation into size.
A look under the hood at the top holdings within MTUM shows WMT, COST and PM propping up momentum factor results during the correction, but the Mega Cap. Growth cohort’s presence kept the alpha generation going as the broad market pivoted from correction to reflation. Some of our best stock level ideas feature prominently includeing AVGO, PLTR, BSX, ISRG, NFLX, JPM, PM and META.
MTUM Top 20 Holdings
Our key takeaway when looking at the holding is the diversity across factors that is represented. Low vol. and income. Low vol. exposures PM, WMT, COST, T, BSX, ISRG cushioned performance during the equity drawdown while a broad mix of cyclical exposures (GS, MS, GEV, GE, JPM, WFC) and Growth (AVGO, NVDA, TSLA, META, PLTR, NFLX) has lifted performance with the broad market. Notably, being a momentum fund, each of these stocks has had a tailwind behind them over the intermediate-term and that strength was a differentiator on performance.
Conclusion
We think continuing to monitor the high momentum cohort is the best way to identify emerging trends in leadership that show sustained buyer interest. We want to ID stocks with momentum potential and then use our technical approach to identify opportunistic entry points on pullbacks when we see sustained upside moves in individual stocks or groups of stocks.
Data sourced from FactSet Research Systems Inc.
