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Not All Momentum Rallies Are Led by Tech; This One Sure Is

Investors often equate momentum markets with growth and tech stocks--and this year's rally met those qualifications. But that's not always the case.

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There are momentum markets, and then there are MOMENTUM markets. The stock market's rally from its coronavirus-driven lows in March 2020 qualifies as the latter: Stocks that were going up kept going up, and the laggards kept lagging, leading to a winning streak that is unprecedented in the past decade. And momentum has been driving portfolios higher than any other factor.

These dynamics also played out at the mutual fund level. Growth-focused strategies whose stock-picking led them to hold stocks with a high degree of momentum have been leading in returns. For the first eight months of 2020, funds that were in the top quintile for both growth and momentum exposure gained 29.5% compared with the S&P 500's 9.7% gain. 

Gabrielle Dibenedetto does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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