Best Stocks: This momentum play seeing huge investor accumulation is on the verge of another breakout

Despite market volatility in 2025, momentum investing is outperforming other factors, with the iShares MSCI USA Momentum Factor ETF (MTUM) exceeding the S&P 500 by 11% year-to-date and demonstrating strong annualized returns over multiple periods. The "Best Stocks in the Market" list shows significant overlap with momentum winners, including names like Visa, JPMorgan Chase and Walmart, highlighting the strategy's adaptive nature and reliance on price trends, currently favoring industrials and tech over utilities.

Analysis

The momentum factor has demonstrated significant outperformance in 2025, continuing its strong showing from previous years, including a 32% gain in 2024 and a compounded annual return of 12.7% over the past decade. Year-to-date 2025, the iShares MSCI USA Momentum Factor ETF (MTUM) has surpassed the S&P 500 by 11%, reinforcing momentum's current market leadership despite broader market volatility and uncertainty where defensive strategies might intuitively seem preferable. This trend is underpinned by the principle that recent strong performers tend to continue their trajectory, a concept rooted in behavioral finance and reflected in price action, which the article posits as the 'final arbiter'. Notably, traditionally defensive stocks such as JPMorgan Chase and Walmart are currently prominent holdings in momentum indices, indicating a broadening of the momentum theme. The 'Best Stocks in the Market' list exhibits substantial overlap with momentum strategies, with 43 names, including Visa (V), Broadcom (AVGO), Netflix (NFLX), Costco (COST), and Palantir (PLTR), appearing on both. This convergence highlights a dynamic shift in market leadership, with Industrials and Technology sectors now dominating the momentum space, a change from previous utility-focused trends. However, the article also cautions that momentum strategies are inherently volatile and prone to sharp reversals, as evidenced by their underperformance during the market bottom in early April 2025.

Key Decisions for Investors

• Given momentum's persistent outperformance, with the MTUM ETF surpassing the S&P 500 by 11% YTD in 2025 and a 12.7% ten-year compounded return, investors should evaluate incorporating or increasing allocations to momentum-driven strategies.
• Investors must remain vigilant to the inherent volatility and potential for sharp reversals in momentum strategies, as evidenced by its brief underperformance in early April, and be prepared to manage risk actively.
• The inclusion of traditionally defensive stocks like JPMorgan Chase and Walmart within top momentum holdings warrants a re-examination of how such stocks are categorized and utilized in portfolio construction.
• Investors should monitor the dynamic sector leadership within momentum, currently favoring Industrials and Technology, understanding that this factor adapts systematically to prevailing price trends.