Here’s a visual of last week’s decline in Momentum Stocks and rotation into Value Stocks.
With the Value rally coinciding with the rally in Yield (conversely, bonds down, not shown).
Reminder: MOMENTUM IS NOT AN INDEX. Whatever momo ETF you use will rebalance, often monthly. [eg: GS: “On average, nearly a quarter of the constituents in our Momentum factor are replaced during each monthly rebalance” …. So, at their next rebalance (early October), their Momo constituents will be quite different.
Also, there are too many symbol choices for Momo and Value. I “cherry picked” the two symbols that best illustrated the “The Historic Quant Crash,” the momentum crisis that the quants have been shrieking about since 9/6, as the “crowded” momentum trade sold off big, and an “unprecedented wave of short covering lifted value/low-volatility stocks.”
Finally, GS weighed in on Thursday 9/12:
“Q3: What should we expect for Momentum going forward?
"Sharp Momentum drawdowns similar to the one that has taken place in the last two weeks usually mark the end of the Momentum rallies rather than tactical buying opportunities.
“At the industry level, the Momentum reversal has reflected a rotation away from bond proxies like Utilities and secular growth stocks like Software & Services in favor of cyclicals like Consumer Durables that had lagged during most of the past 12 months.
"…investors need to diversify their bond and bond proxy risk.”
Daily: