Silver lining to the sell-off: Safe stocks are getting dumped as the momentum stock fever breaks
A glass-half-full view of another dour tape, as the S&P 500 lowers and President Trump ratchets up tariffs on Canada: the market’s hidey-holes are getting hit more than the momentum stocks whose breakdown has thus far been front-and-center in driving the overall sell-off.
The iShares MSCI USA Min Vol Factor ETF, which, as the name suggests, holds stocks that tend to be less volatile than average (i.e. they have a lower beta), is down 0.9% as of 11:20 a.m. ET. Meanwhile, the iShares MSCI USA Momentum Factor ETF, which holds companies with the strongest 6- and 12-month risk-adjusted performance, is up.
If sustained, this would mark the first time minimum volatility stocks underperformed momentum on a down day for the S&P 500 since the retreat from record highs began.
Over the history of these products, stretching back to 2013, the recent three-week performance of MTUM versus USMV has never been worse, as of yesterday’s close.
As a shorthand, perceived “safe” companies like Verizon, General Mills, and McDonald’s are falling more than the S&P 500, while the likes of Reddit, AppLovin, and Robinhood bounce.
(Sherwood Media is an independently operated subsidiary of Robinhood Markets Inc.)
The only comparable stretch of momentum underperformance versus min vol was late 2021, a period that bears some resemblance to the current environment: an abrupt increase in policy uncertainty (Omicron variant then; tariffs, US growth, and AI concerns now), a big US bond rally, and the aforementioned shellacking of momentum stocks and herding into their min-vol counterparts.
