LIVE MARKETS-Momentum still leads, but are small caps 2025's Whirlaway?

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MOMENTUM STILL LEADS, BUT ARE SMALL CAPS 2025'S WHIRLAWAY?

It's been quite a battle for the S&P 500 index so far this year. That is, from record highs in mid-February, to nearly bear-market lows in early April, to fresh record highs, most recently just last week.

Given renewed risk-taking, it's perhaps no surprise that when it comes to major style factors that have historically driven portfolio returns, momentum and growth have galloped to the front of the pack.

That said, so far this quarter, small caps may be 2025's Whirlaway (Whirlaway was a famous race horse, which, in the early 1940s, was known for come-from-behind victories).

Major investing style factors include stocks discounted to their fundamentals (value), financially sound companies (quality), size (small caps), stable, lower-risk stocks (low volatility), and stocks exhibiting upward price trends (momentum).

To this, let's add in as separate factors mid- and large-caps, high-growth companies (growth), and those stocks that provide income (dividends).

The S&P 500 index .SPX rallied 4.5% into its February 19 then-record close. It then collapsed 19% into its April 8 closing low before surging more than 30% into its early-September record close. The benchmark index is now up 10.4% in 2025 as of its September 8 close.

Meanwhile, the SPDR S&P 500 ETF Trust SPY.P is up around 10.7% year-to-date (YTD).

Here is a graphic showing the YTD factor ETF percentage changes as well as how they have performed vs the SPY (factor/SPY ratio change):

Momentum MTUM.K is out front with a 19.1% advance so far this year.

That said, after an April-June surge, its quarter-to-date (QTD) rate of change is just +2.6% (vs +4.7% for the SPY). Next in line is growth SPYG.P with a 14.9% YTD advance.

Of note, both of these ETFs had heavy tech .SPLRCT exposure (48% for momentum and 62% for growth) as of the end of August.

Large caps SCHX.K are up 10.9% YTD, which is roughly flat with the SPY.

Meanwhile, with a recent surge, small caps IWM.P are making a run, and are no longer the glue. The IWM is now up 7.8% YTD and is rapidly closing its gap with the SPY. In fact, QTD, small caps are posting the strongest rate of change (+10.4%) of any style factor.

Quality QUAL.K (+6.5% YTD), value SPYV.P (+6.4%), mid caps IJH.P (+6.0%), dividends NOBL.K (+4.8%), and low volatility SPLV.P (+4.5%) are all positive this year, but are also underperforming the SPY.

In any event, as the 2025 race continues to unfold, and the market approaches the final turn, traders will be keeping a close eye on all these factors as they continue to jockey for position throughout the rest of the year.

(Terence Gabriel)

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