Momentum Factor Roars As War Fears Fade On Wall Street

Key Takeaways

• MTUM up 14% since Feb 28, outpacing S&P 500’s 5.3% gain
• High‑beta ETF SPHB ranks second, micro‑cap IWC follows
• Low‑volatility USMV down 3%, the only factor lagging market
• Strong Q1 earnings: 84% EPS surprise, 81% revenue surprise
• AI cap‑ex projected to exceed $1 trillion by 2027, fueling growth

Pulse Analysis

Since the outbreak of the Middle East conflict on Feb. 28, the iShares MSCI USA Momentum Factor ETF (MTUM) has surged more than 14%, dwarfing the S&P 500’s 5.3% rise over the same period. The rally has pushed MTUM to a record high, confirming that momentum‑driven stocks are thriving in a risk‑on environment. High‑beta exposure through SPHB and micro‑cap exposure via IWC have also outperformed, while low‑volatility holdings like USMV are the lone laggards. The data suggest that investors are rewarding price‑trend strength despite geopolitical headlines.

Analysts point to three catalysts that have insulated U.S. equities from the oil shock. First, America’s near self‑sufficiency in energy means domestic fuel price spikes are modest compared with Europe and Asia. Second, earnings season has been unusually robust: FactSet reports that 84% of S&P 500 companies posted an earnings‑per‑share surprise and 81% beat revenue expectations, delivering a 27.1% year‑over‑year earnings growth rate for Q1 2026. Third, AI‑related capital spending is projected to top $1 trillion by 2027, adding a secular growth tailwind for tech‑heavy factor baskets.

For portfolio managers, the divergence between momentum‑driven ETFs and defensive low‑volatility funds signals a clear tilt toward growth and risk‑on assets. While the upside appears strong, concentration risk remains; a sudden slowdown in AI cap‑ex or a sharp correction in high‑beta stocks could reverse the current trend. Nonetheless, the combination of resilient energy exposure, solid earnings momentum, and massive AI investment budget suggests that momentum and high‑beta strategies may continue to outperform the broader market through the remainder of 2026.