Today, we review the health of momentum as risk-on areas capped off another strong month, especially relative to risk-off areas within equities.
We’ve talked at length about the strength of mega cap technology and other risk-on areas driving the market higher over the last several years, and October largely saw that trend continue. Technology was the best performing sector by a mile, with the Technology Select Sector SPDR Fund (XLK) gaining 6.7% on the month, which was 3 percentage points higher than the next closest major sector. Additionally, other high-octane areas of the market also delivered strong results, with the Invesco S&P 500 High Beta Portfolio (SPHB) rising 4.8%. Meanwhile, many risk-off areas of the market moved lower during the last month, with the Invesco S&P 500 Low Volatility ETF (SPLV) falling 3.9%.
In fact, October saw some of the largest spreads between the risk-on and risk-off stocks since June. Specifically, S&P 500 stocks with a beta above 1.5 (entering 2025) averaged a 1.9% gain, while stocks with a beta below 0.5 fell 6.4%, marking their worst month since April. However, this bump didn’t come out of nowhere. The last several months have seen sustained leadership from those same high-octane stocks. Notably, high beta stocks have risen 51.5% from the market’s post Liberation Day low on April 8th, which far exceeds the 3.6% return of the lowest beta stocks. Additionally, high beta stocks have been higher each of the last six months, highlighting the group's consistency. The performance of these groups is also reflected in their technical strength. The average technical attribute score for a high beta S&P 500 stock is 3.21, whereas low beta stocks hold a much weaker average TA score of 2.0.
Looking again at high beta representative SPHB and low volatility representative SPLV further confirms the strength of risk-on areas, especially in comparison to risk-off stocks. For example, the Invesco S&P 500 High Beta Portfolio (SPHB) is on three consecutive buy signals and trades in a positive trend while holding a near-perfect fund score of 5.85, in addition to displaying a sharply positive score direction of 4.19. Conversely, the Invesco S&P 500 Low Volatility ETF (SPLV) recently reversed back into Os on its chart after moving to sell signal in April. It also moved to its third consecutive market RS sell signal, highlighting its long-term weakness versus the broader market. It also holds a weak fund score of 1.95 and a negative score direction of 2.71, significantly lagging the strength of SPHB.
In fact, the current fund score differential between the two ETFs is at its widest spread since early 2024, with 2023, 2021, 2009, and the 1990s being the only other instances where SPHB was favored so heavily. Like technology (which currently ranks first in DALI), cyclical stocks continue to be some of the strongest areas of market for the time being. Given the weight of the evidence pointing in favor of risk-on leadership, the group should remain a point of emphasis within portfolios until signs of deterioration begin to emerge.
Momentum works best in environments of stability, and the consistency of risk-on groups has been a tailwind for broader momentum strategies. The leaders of the market continue to ascend the fastest, while laggards remain firmly out of favor—a trend clearly reflected in recent performance. One measure of momentum’s strength is the RS Spread Index (RSSPREAD), which measures the difference in performance between the top 20% and bottom 20% of stocks by momentum. Last week, the indicator set new all-time highs above 18 after moving back to a buy signal in September, suggesting continued strength for momentum, which is a good sign as we look ahead to year-end and beyond.
