Wolfe Research says momentum stocks may extend gains on AI theme

Investing.com - Momentum stocks are positioned to continue leading the market higher as long as semiconductor stocks remain in leadership and market broadening does not occur, according to Wolfe Research.

Momentum has been a top performing factor year-to-date by a large margin, followed by 3-month earnings per share revisions and liquidity. The research firm noted that investors have been asking how much longer the factor will continue to lead the market higher.

Wolfe Research said the momentum trade is synonymous with a narrow market, given the high returns exhibited by the tech-specific momentum factor. The firm believes the factor likely continues to lead the market as long as semiconductors remain within leadership.

Narrow performance year-to-date and leverage to the AI buildout theme has caused a large divergence between sector momentum factors. The research firm said not all momentum is the same.

Wolfe Research said if a resolution between the U.S. and Iran continues to get pushed back and stocks trade in a more choppy environment, the momentum factor is likely to continue to lead indices and sectors higher.

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