Momentum has outpaced the broader market so far this year. We dive underneath the hood to examine forces driving that outperformance.
As we close out the first month of 2026, momentum remains a resilient leadership theme within U.S. equities. Strong sector trends, concentrated leadership in technology, and widening performance dispersion across the broader market have all contributed to momentum’s continued strength. Today’s piece focuses on the factor’s advantages and indicators that point to another good year for momentum.
The iShares MSCI USA Momentum Factor ETF (MTUM) leads the SPDR S&P 500 ETF Trust (SPY) by about 1% on a year‑to‑date basis through the end of January, even with more amplified losses in the final day of the month. The chart below highlights the sector weight differentials between the two ETFs. The most notable divergences include MTUM’s roughly 50% allocation to technology versus SPY’s 42%, as well as MTUM’s underweight position in healthcare—approximately 3.7% compared to SPY’s 9% weight. These distinctions illustrate how overweighting recent winners and underweighting laggards can enhance returns, particularly in an environment where winners continue to dominate losers.
Further emphasizing momentum’s leadership, Tuesday (1/27/26) marked a standout day for the factor. The RS Spread (RSSPREAD)—which groups 1,000 stocks into quintiles based on performance and measures the performance of the top quintile against the bottom quintile—marked a nearly 300‑basis‑point spread. Much of the outperformance in the top quintile was driven by technology‑focused names, which lifted fifth‑quintile returns meaningfully. Meanwhile, the first quintile faced broad weakness, with both the healthcare and communication services sectors declining more than 300 basis points. Healthcare’s sharp underperformance was largely driven by the release of Medicare Advantage rates for 2026, which came in far below expectations and prompted double‑digit declines among several major names in the sector.
The RSSPREAD chart on the research platform, which tracks dispersion between the top and bottom quintiles back to the early 1990s, also moved higher following Tuesday’s surge. With this latest jump, the spread marked a new all‑time high. This continues to highlight possible tailwinds for momentum and reinforces its standing as one of the strongest factors going into February. As long as leadership remains concentrated and dispersion stays elevated, momentum is likely to remain a strong and dominant factor heading into the coming months.
