With equities finding support and resuming their advance, it may signal that buyers are once again in control of the market, especially within high-momentum areas as the RS Spread sets new highs.
During periods of volatility, investor sentiment tends to fall somewhere between the extremes of “it’s so over” and “we are so back.” Recent action serves as a clear example of how quickly investors can swing between the two, with markets moving decisively toward the latter over the past ten days as conflict in Iran has subsided.
On March 30th, the S&P 500 (SPX) was within one percent of entering a correction while on a streak of three consecutive sell signals, with fears of a bear market intensifying. Meanwhile, high‑momentum areas of the market were taking an even larger hit, with the iShares MSCI USA Momentum Factor ETF (MTUM) falling as much as 12.5% and triggering its first sell signal since April of last year. Just ten days later, the S&P 500 gained nearly 7% to return to a buy signal for the first time since January. The index is now within three percent of all‑time highs, with initial support at 6,350 then 6,250. Momentum names have also flexed their muscles in recent weeks, with MTUM gaining 12.5% over the last ten days, reversing back into a column of Xs. With equities finding support and resuming their advance, it may signal that buyers are once again in control of the market.
Another way to quantify the strength of momentum is through the relative strength spread index (RSSPREAD), measuring the gap in performance between a basket of high-momentum names and a basket of low-momentum names. If the RS Spread Index is moving higher, high‑momentum names are outperforming low‑momentum names. After previously declining and sitting on a sell signal, the RS Spread Index reversed to a buy signal this week while setting new all‑time highs, signaling a rebound in high‑momentum names. A rising RS Spread is typically the most conducive environment for momentum strategies.
Despite heightened volatility this year, high‑momentum names have quietly delivered one of their strongest performances in recent years, with the RS Spread up 18% YTD. Said plainly, the market’s leaders are outperforming the laggards by 18% in 2026, marking the widest spread since 2022. Looking at prior years through April 8th, 2026 marks the fifth‑best start for momentum dating back to 1990, and there’s reason to believe those leaders could continue their hot streak When the RS Spread has been positive through April 8th, leaders have averaged an additional 8.8% of outperformance versus laggards over the remainder of the year. Additionally, when the index was up more than 15% by this point in the year, the results were even stronger, with the spread widening by an average of 12% over the remainder of the year. By contrast, poor starts for the RS Spread have historically been indicative of a lack of further momentum. If the RS Spread is negative through April 8th, the spread has risen just 0.5% during the rest of the year. Momentum tends to be self‑reinforcing, and strong starts like the one seen so far have historically been more likely to persist, boding well for momentum strategies in 2026.
