Momentum Stocks on a Tear — Evening Brief – 02.18.25

Momentum stocks, especially in the semiconductor and retail sectors, have been pulling ahead so far this year, delivering strong outperformance in comparison to other factors like high beta and small-cap value stocks.

The iShares MSCI USA Momentum Factor ETF (MTUM) has clearly benefited from strong gains by businesses such as Broadcom (AVGO), a semiconductor company with a 6.2% portfolio weight that is up 16% so far in 2025. In addition, Walmart (WMT), which has a 5.4% portfolio weight, is up 15.2% year to date. The performance of these two stocks is presently contributing to MTUM’s strong 10.3% year-to-date gain, which is more than double that of the SPDR S&P 500 (SPY), the broad equity market benchmark.

Conversely, the second-best factor, high-beta, lags considerably, as evidenced by the SPDR S&P 500 High Beta ETF (SPHB), which has increased by 5.4% thus far in 2025. These stocks are evidently propelling the momentum factor, while other variables, such as high beta, are considerably underperforming.

It is significant that despite evidence of widespread market strength, momentum continues to lead the pack, particularly when other sectors such as small-cap value are underperforming. The comparison with the SPDR S&P 500 ETF (SPY) indicates that momentum stocks in the semiconductor and retail sectors significantly influence MTUM’s performance more than the major constituents of the broader index.

The performance of Apple (AAPL) and NVIDIA (NVDA) relative to momentum stocks like AVGO and WMT clearly illustrates the leadership of momentum stocks in 2025. Despite being two of the biggest names in the S&P 500, both AAPL and NVDA are underperforming so far this year, with AAPL down 2.2% and NVDA up just 3.4%.

The strong leadership of momentum stocks in 2025 is indeed remarkable. However, there’s a clear distinction between the leaders and the laggards. The small-cap value factor (IJS) being the weakest performer with just a 0.3% gain year-to-date showcases how certain investment styles, particularly those focused on smaller companies or value stocks, are struggling to keep up with the broader momentum-driven rally.

This trend suggests that growth-oriented stocks, especially those in high-growth sectors like semiconductors and retail, are leading the way, while more conservative or undervalued stocks are being left behind.