When will Walmart’s mangling of US momentum stocks end?
The retailer’s lackluster outlook has catalyzed a takedown of high flyers, including Palantir, JPMorgan, and Nvidia.
The US stock market has lost its mojo.
The iShares MSCI USA Momentum Factor ETF, which holds US stocks with the best risk-adjusted price momentum over the past 6 and 12 months, is down 5% in the past three sessions in one of its worst stretches over the past few years.
For the two years prior to Friday, the momentum ETF tended to have a daily beta of 1.16 versus the S&P 500 — that is, if the benchmark US stock index fell or rose 1%, you’d expect it to be down or up 1.16%. However, that relationship has become much more extreme in recent sessions, with the S&P 500 only off ~2.6% during the momentum rout.
Indeed, Momentum has been the worst-performing US equity factor portfolio tracked by Bloomberg for three straight sessions, the first time that’s happened since last April.
The catalyst: a disappointing outlook from Walmart, a firm that has tended to sandbag its guidance as of late, for what it’s worth. The retailer is one of the iShares ETF’s top weights; JPMorgan, Nvidia, and Palantir are also in the top 10.
A baker’s dozen of the 124 stocks in its holdings are off double digits over the past three sessions, and you can wrap a fundamental story around a lot of the massive retreats.
Concern about potential overbuilding of AI data centers is weighing on the likes of Arista Networks, Quanta Services, Vistra, GE Vernova, Constellation Energy, and Vertiv Holdings. And for Palantir, you can point to Karp’s stock sales and potential cuts to defense spending.
But for others, it’s a lot harder to make sense of what’s going on besides the unappealing explanation that gravity exists. Carvana’s quarterly results and outlook weren’t terrible. The stock cratered anyway. Robinhood has given up more than all of its post-earnings surge. Most of AppLovin’s jump after reporting has reversed, too.
(Robinhood Markets Inc. is the parent company of Sherwood Media, an independently operated media company.)
The drop in US stocks, propelling the S&P 500 below its 50-day moving average, has also come amid some relatively sluggish US economic and confidence data, prompting traders to boost how much Federal Reserve easing they expect for this year. But so far, this stock market drawdown looks more like momentum mauling rather than a genuine growth scare — though there’s always the prospect for the sell-off to metastasize into something more perverse.
