That's a popular measurement that averages together 200 most recent closing prices of a stock to get a sense of its long-term price trends. He evaluated price momentum based on changes in the stocks' 200-day moving averages. Bringing those threads together, he assembled a list of "Buy"-rated small-cap stocks that attract reasonably heavy trading interest and have strong price momentum. He noted that cyclical stocks like industrials and banks tend to have high momentum scores, so if those stocks continue to do well, it's likely that the momentum trade will work better than it has recently.ĭeSanctis thinks investors are also getting more bullish on small-cap stocks, noting that small-cap ETFs are attracting more money. "We think price momentum will regain its mojo," he said. And when that happens, the highest of the high-momentum names do especially well. He says that when momentum does this poorly, it "snaps back" to stronger performance. "This is way too strong and needs to cool." "The cheapest stocks are beating the most-expensive by 36.5% over the last year, and the gap ranks in the 97th percentile," he wrote. DeSanctis says it's about time for that trend to correct itself.
The hot stocks are failing to stay hot for very long, he says, and stocks with lower valuations according to metrics like price to earnings are outperforming dramatically. In fact, Jefferies Equity Strategist Steven DeSanctis says that momentum has underperformed to an unusual degree. Since then, other tactics have worked far better - for example, simply buying cheap stocks that are statistically cheap, like the old adage suggests. The pandemic and the COVID-19 market crash finally brought an end to that. Instead of market leadership passing from one industry to another as time went on, many of the stocks that were going up just kept doing so far longer than expected. That exact approach, called momentum investing - sometimes coupled by shorting stocks that are falling - was fabulously successful during the lastīull market.
The most famous investing maxim is "buy low, sell high." But sometimes investors can make a lot of money by simply buying what's already hot and betting on continued gains. It's a method that worked extremely well in the last bull market, but hasn't paid off recently.The approach involves buying stocks that are already proven winners.Jefferies strategist Steven DeSanctis says momentum investing is ready for a comeback.
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