Run on Momentum Stocks Is Punishing a Surprising Group
September 26 2019 - 8:29AM
Dow Jones News
By Akane Otani
September has turned the strongest trades of the year on their
heads, sparking a rare period of underperformance among many big
technology stocks. But the shares that have taken the biggest hits
aren't the usual suspects.
Shares of Visa Inc., Mastercard Inc. and PayPal Holdings Inc.
are each down at least 3% for the month, even as some of the
popular FAANG stocks -- Facebook Inc., Amazon.com Inc., Apple Inc.,
Netflix Inc. and Google parent Alphabet Inc. -- are headed toward
monthly gains and the S&P 500 is up 2% for September through
Wednesday's close.
One reason why payment stocks have been hard hit: the group is
actually more closely tied to the momentum trade that has faltered
this month than the FAANG stocks are, according to DataTrek
Research. Investors betting on momentum typically buy shares of
companies that have risen the most in the past 12 months and sell
relative losers, betting the outperformance of the former will last
long enough for them to reap a profit. In recent years, momentum
bets have often included growth stocks, which typically look
expensive compared with the broader market but offer
higher-than-average profit growth.
Because FAANG stocks have logged huge gains over the past couple
of years, it is easy to mistakenly categorize them as momentum
stocks, according to DataTrek. In reality, the volatility FAANG
stocks have run into over the past year has kept them out of many
exchange-traded funds and baskets that follow the momentum
trend.
For instance, the iShares Edge MSCI USA Momentum Factor ETF
includes Mastercard, Visa and PayPal, which have all handily
outperformed the S&P 500 with gains of more than 20%
year-to-date. The ETF, however, excludes all five FAANG stocks. It
has fallen 1.2% in September, on course to post its first monthly
decline since May.
"'Big tech' continues to work despite the shift out of momentum
names because only one, Microsoft, actually fits that bill,"
DataTrek co-founders Nicholas Colas and Jessica Rabe said in a
note. "All of the volatility in Apple, Facebook and Alphabet over
the past year has actually insulated these stocks from the recent
'momentum meltdown.'"
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Write to Akane Otani at akane.otani@wsj.com
(END) Dow Jones Newswires
September 26, 2019 08:14 ET (12:14 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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