Wall Street on edge as momentum trading wraps up historic quarter

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The easiest financial system on Wall Street – beloved by the world’s most intelligent financial institutions and more – just closed its best quarter in more than two decades.

Now the financial group from JPMorgan Chase & Co. to PGIM Quantitative Solutions adds warnings that chasing directions the product appears mature due to damage.

Known as the Momentum factor, investment strategies that buy winners last year as strong Nvidia Corp. – by selling losers like Warner Bros. Discovery Inc. — had its best quarter since 2002, according to a long record compiled by Bloomberg.

Investors have bought in artificial intelligence promise in crowd, delivery to calculate for the stock market’s biggest winners are increasingly betting that game-changing technology will deliver profits for years to come – regardless of America’s twists and turns. wealth.

However, the steady growth of the US economy has begun to rise in places that are not very fond of the stock market, as the Federal Reserve initiates chatter. very reasonable more than expected Inflation has skyrocketed. It is to raise the hope that new winners will emerge soon if the power is small hats – the two most backward sectors in America the marketLast annual meeting.

These types of shows have been broken time and time again by the best performers Meta Platforms Inc. sending and earnings bonanza. Yet any volatility from the winners to the losers – a potentially positive outcome for the broader market – could come at a very painful time. Momentum is among the stocks that have seen the biggest increase in crowdfunding this year, Sanford C. Bernstein data shows, as investors piled $2 billion into the channel through exchange-traded funds.

“We may be at greater risk of a financial meltdown because inflation may not fall as well as financial markets expect,” said Stacie Mintz, head of quantitative equity at PGIM Quantitative Solutions. “Time running is difficult – it’s like riding a wave and trying to decide when to jump before it crashes.”

In the holiday-shortened week before the release of key inflation data on Friday, the small-cap Russell 2000 rose 2.5% in the short term. way it posted its fourth straight week – all signs of a market reversal that supports the risk trade.

The S&P 500 rose 0.4% this week as a Nasdaq 100 was down 0.5%. Back in the dark days of 2021, Donald Trump’s Trump Media & Technology Group Corp to climb after being exposed to a combination of nothing.

The stock mania has ended choppy trading in Treasuries and Bloomberg-combined 60/40 history increased by 3.6% this quarter. Among the factors most closely followed by leveraged investors — the drivers of stock returns — growth, value and profitability are all in the green in 2024, Bloomberg indexes show.

AQR Equity Market Neutral Money – the bellwether for systematic factor portfolios – has made money every month this year, averaging returns of around 12%.

The trend has a history of bad crashes, often when sudden changes lead to underperforming companies – like after the Covid vaccine was announced in November 2020. Although the definitions of power may vary, the well-known method of changing their one-year shares creates a long-term trend on Big Tech and briefly on financial and energy sectors – investing. at the risk of reflationary rotation.

Adding to the concerns of naysayers are indications that the product has become popular because of its benefits, and JPMorgan analysts warn that it is the biggest crowd since the global financial crisis.

Meanwhile, stocks are rising amid signs that the US economy is still growing well as Fed Chairman Jerome Powell said last week. he stopped short by issuing new hawkish warnings about easing the financial crisis. At the moment inflation, despite cooling, remains dangerous.

Any expansion in interest rates would be good news for many stock pickers because of the sharp drop in stock market returns. In recent weeks, interests in the energy and industrial sectors have risen to record highs, while technical performance has weakened.

“With the Fed appearing to be more concerned about inflation or deflation, trade is rebounding,” he wrote. Morgan Stanley strategists led by Michael Wilson. “Market insiders seem to have it.”

The group rightly raised the energy to a very heavy weight, citing stable oil prices and favorable prices. Meanwhile, Barclays Plc sees investments moving into peripherals like banking, energy and pharmaceuticals.

At Jefferies, analysts split the difference: Advising clients to keep trading but focus on stocks where earnings are rising again, such as Nvidia, Netflix Inc. and The The difference Inc.

At the Wealth Enhancement Group, Ayako Yoshioka combines momentum betting with value shares – and says a decline in the high-performance rally is more likely than a sudden collapse.

“As we head into the earnings season, we may have hotter information than we expected,” said the executive, who sits on a $6.5 billion fund-raising committee. “A lot of that could be normal, but I don’t think it’s going to be that bad.”

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