MW These 15 stocks are still showing momentum - and a market-beating edge
By Mark Hulbert
'Big mo' stock strategies have lost their advantage, but these companies display relative strength
When it comes to following momentum strategies in the stock market, all are based on the same basic premise: Stocks that have recently performed the best are likely to continue performing well for a while longer. The difference between the various strategies boils down to how to put that premise into practice.
The answer that has academia's seal of approval is to define momentum over the period from 12 months previously to one month previously, and to reform the portfolio on a monthly basis.
Over 150 years of U.S. stock-market history, this approach has handily beaten the market average. But over the past couple of decades, momentum strategies have weakened.
This is illustrated in the chart below, courtesy of data from Dartmouth College professor Ken French. The chart plots the amount by which the 10% of stocks with the greatest momentum have beaten the S&P 500 SPX over a trailing 10-year period.
Momentum's "alpha" advantage has not only shrunk - over the past two decades, it has hovered near zero. Furthermore, since the returns French reports don't include transaction costs, the momentum portfolio's net-of-transaction-costs alpha over the last two decades is likely no better than zero.
Many factors account for momentum's shrinking alpha. One may be the exclusion of the most recent trailing month when defining momentum. This exclusion traces to a pattern called the "short-term reversal effect," according to which extreme returns in a given month are typically reversed in the succeeding month. To the extent this effect exists, of course, momentum is better defined by excluding the most recent month.
In recent years, however, this effect seems to have largely disappeared. Consider the performance of an ETF called the Vesper U.S. Large Cap Short-Term Reversal Strategy, which was shut down in March. The specialized ETF was launched in September 2018 to exploit the short-term reversal effect, but wound up lagging the S&P 500 by almost 4 percentage points on an annualized basis.
A second factor may be that investment horizons are shortening. It used to be, for example, that investors' default horizon was the trailing 12 months. That's in large part because the financial media each day would list stocks hitting new 52-week highs or lows.
No more: A recent study has found that today's investors are defaulting to far shorter look-back horizons. The study, which the National Bureau of Economic Research has been circulating in academic circles, is entitled "The Research Behavior of Individual Investors."
The study's authors obtained data showing not only the web pages that a large sample of investors focused on before buying or selling stocks, but how long they spent on each of those pages. They found that most of the time investors spend on stock research is devoted to looking at price charts - and of the time they focus on price charts, 73% of the time that look-back horizon is one day or less.
Updated momentum
The look-back period with the best return over the 22 years studied was six months.
It stands to reason that the momentum effect needs to be updated to reflect investors accelerating myopia. Nicholas Rabener recently conducted the necessary research; he is the founder and CEO of Finomial, a London-based investment firm.
Rabener focused on the U.S. stock market from 2003 to 2025, calculating the performance of momentum portfolios defined with look-back periods as short as one week to as long as 24 months. The look-back period with the best return over the 22 years studied was six months.
With this result in mind, I sorted the stocks in the Russell 3000 index RUA according to their trailing six-month returns (according to LSEG data). The 15 stocks below are those in the top decile and which have a market cap of at least $10 billion; they are listed in descending order of their six-month returns through Nov. 14.
-- Sandisk Corp. SNDK (557.5%)
-- Bloom Energy Corp. BE (432.6%)
-- Western Digital Corp. WDC (225.9%)
-- Lumentum Holdings Inc. LITE (210.5%)
-- Insmed Inc. INSM (189.8%)
-- EchoStar Corp. SATS (186.1%)
-- MP Materials Corp. MP (167.4%)
-- Oklo Inc. OKLO (152.8%)
-- Warner Bros. Discovery Inc. WBD (148.3%)
-- Wayfair Inc. W (151.3%)
-- Micron Technology Inc. MU (147.3%)
-- Credo Technology Group Holding Ltd. CRDO (142.1%)
-- Ciena Corp. CIEN (136.1%)
-- Guardant Health Inc. GH (137.2%)
-- Avidity Biosciences Inc. RNA (132.9%)
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com.
More: 'There's definitely a bubble in markets,' Ray Dalio says. Why you still shouldn't sell.
Also read: Small stocks have lagged large caps for years - can they beat the odds now?
-Mark Hulbert
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November 20, 2025 15:45 ET (20:45 GMT)
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