Tech Stocks And the Momentum Meltdown

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Tech Stocks And the Momentum Meltdown

Many Technology stocks are momentum names, but most large Tech stocks do not fit that moniker. This is an important difference, even if it sounds like a college logic class exam question.

Why this matters just now: the shift out of momentum stocks has been ferocious in the past 30 days:

  • The MSCI USA Momentum Index, as measured by the MTUM ETF, is only up 0.6% over the past month.
  • The S&P 500 is up 3.2% over the last month.
  • This recent performance differential has put the S&P, up 19.4% YTD, within reach of the Momentum Index’s YTD return of 20.2%. Back on September 5th, that difference was 410 basis points.

Given that the Momentum Index is 39% weighted to Technology, no surprise then that the S&P Tech sector is only +1.5% over the last month. But…

  • Apple, 18% of the Tech sector, is +3.5% in the last month and beating the S&P 500.
  • Google, which may be classified as “Communications” by S&P but is “Tech” to most investors, is +3.9% in the last month.
  • Facebook, with the same split-sector personality as Google, is +3.3% over the last month.

So what gives here? The simple answer is:

  • AAPL, GOOG(L) and FB are not in the MSCI USA Momentum Index.
  • The top Tech stocks that do make the momentum cut: Microsoft (5.2% weight, +1.6% 1-month performance), MasterCard (5.2% weight, -2.2%), Visa (5.1%, -2.9%), Cisco (3.4%, +3.5%), and PayPal (2.3%, -2.5%).
  • The top Communication stocks in the momentum index: Disney (4.0%, -2.1%) and Comcast (3.1%, +5.5%).

What all this tells us, in 3 concluding points with some further information:

#1: The biggest losers in “Tech Momentum” were MasterCard, Visa and PayPal, three names that could just as easily be called “Financials”. It’s not a stretch to believe that portfolio managers sold down their positions here in the last few weeks to fund the purchase of “real” Financials, which are +6.0% in the last 30 days.

#2: “Big Tech” continues to work despite the shift out of momentum names because only one (MSFT) actually fits that bill. All the volatility in AAPL, FB, and GOOG(L) over the past year has actually insulated these stocks from the recent “momentum meltdown”.

#3: Investor interest in momentum-style investing seems unfazed by recent volatility. The latest month flow data from shows that 1-week inflows into MTUM total $103 million and 1-month inflows are $170 million, well in line with 2019 averages.