Morgan Stanley strategist sees earnings as the catalyst to revive the faltering momentum trade, predicting a rotation back into high-momentum stocks as Q2 reports beat expectations and lift momentum ETFs like MTUM.
Morgan Stanley's Wilson explicitly states that earnings will revive the momentum trade, directly benefiting ETFs that track high-momentum US equities like MTUM. The call targets the momentum factor specifically, making MTUM a clear beneficiary.
MTUM tracks stocks with strong recent price momentum. Strong earnings reports can reinforce momentum signals and attract capital back into the factor, potentially boosting MTUM’s performance.
Over the short term, if US companies report positive surprises and raise guidance, momentum stocks could rally sharply as investor sentiment shifts toward growth and trend-following strategies.
If earnings come in below expectations or if macroeconomic headwinds such as higher rates persist, the momentum trade may fail to gain traction and MTUM could underperform.
While the article focuses on the momentum factor, general earnings strength would likely lift the broader S&P 500, which has seen a rotation away from growth. Revived momentum could add upside to SPX as large-cap momentum stocks regain leadership.
Since the S&P 500 includes many high-momentum stocks, a revival of the momentum trade could help lift the index, especially if large-cap growth stocks lead the charge.
If earnings are strong enough to revive the momentum factor, the S&P 500 could still rise as momentum stocks are weighted heavily. However, broad-based disappointment would cap gains.
Morgan Stanley’s chief US equity strategist Mike Wilson expects the coming Q2 earnings season to reignite the momentum trade, which has stalled amid a rotation into value stocks. He cites strong corporate profits and upward guidance revisions as catalysts for a resurgence in high-momentum names. The call suggests a shift back into growth and momentum ETFs like MTUM, offering a potential short-term boost to the S&P 500.
He said that upcoming earnings reports are likely to revive the momentum trade, which has stalled, by providing positive catalysts through strong results and guidance.
The momentum trade has suffered from a rotation into value stocks and defensive sectors, but Wilson expects earnings to shift investor focus back to high-growth, high-momentum companies.
ETFs tracking momentum factors, such as MTUM, could see renewed inflows and performance if earnings indeed revive the momentum factor.