The anarchists in Chumbawamba might not like the reference, but momentum stocks like Tesla Motors (TSLA), Netflix (NFLX) and TripAdvisor (TRIP), after getting knocked down, have gotten up again.
Associated Press Bloomberg reports:
Netflix Inc., Tesla Motors Inc. and TripAdvisor Inc. have rallied more than 16 percent in the past four weeks, recouping most of the losses from a rout during March and April. The Nasdaq Composite Index reached a 14-year high this week and the Russell 2000 Index is 2 percent from a record. Both fell at least 8 percent earlier in 2014.
The comeback in technology and small-caps shows appetite for risk is returning as investors overcome concern about the economy and stock valuations. The Standard & Poor's 500 Index has risen in four of the past five weeks and is up 1.2 percent since June 13, reaching a record.
Nomura’s Joe Mezrich discusses the active managers’ reliance on momentum:
Although hired for their stock picking skills, fundamental managers have become enormously dependent on momentum as they seek to boost alpha…If the correlation of excess returns to momentum, as noted in Figure 3, continues, the question for fundamental managers will be whether momentum will once again produce positive returns. Our expectation is that momentum will likely reward, which should benefit
fundamental active managers. If managers pull back their momentum reliance—which anecdotally seems to have been the reaction of some managers to the March and April markets—then we believe their future success will mainly depend on the correlation of stocks to each other and the dispersion of stock returns across the market.
Shares of Tesla Motors have gained 0.1% 227.91 at 3:09 p.m. today, while Netflix has dropped 0.3% to $440.08 and Trip Advisor has risen 0.3% to $103.31.
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