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MOMENTUM EXTENDS LEAD AS STOCKS LOG ANOTHER SOLID MONTH

May was another solid month for stocks, even if the pace of gains cooled a bit compared to April.

If you look beneath the surface, the big story hasn’t really changed: momentum is still dominating -- and pulling even further ahead.

For context, style “factors” are broad buckets like momentum, growth, small caps, quality, and low-volatility stocks — all of which can perform very differently depending on the backdrop.

The SPDR S&P 500 ETF SPY.P rose 5.3% in May, but some factors outperformed that.

Even with no clear resolution to the U.S.-Israeli conflict with Iran, market uncertainty continued to ease. The VIX .VIX dropped to its lowest level since January, which has been a big tailwind for momentum trades. The iShares Momentum ETF MTUM.K jumped more than 11% in May alone. That brings its year-to-date gain to 26.2% -- well ahead of SPY’s 10.9%. And with a 31.6% advance, MTUM is on pace for its biggest quarterly gain ever, since it launched in 2013, based on LSEG data.

Behind momentum, small caps are still holding onto second place, with the Russell 2000 ETF IWM.P up 18% so far in 2026. Growth stocks have also gained ground -- the SPDR growth ETF SPYG.P jumped 8.3% in May and is now up 13.9% YTD, putting it in third.

Mid caps IJH.P, up 13.3% this year, have slipped to fourth, while large caps SCHX.P, at 10.6%, are roughly in line with the broader market. Quality QUAL.K is lagging just a bit, up 8.5%.

On the other end, more defensive plays are underperforming. Dividend aristocrats NOBL.K and low-volatility stocks SPLV.P are still positive for the year -- up 3.1% and 1.1%, respectively -- but are well behind the S&P 500, a notable reversal from earlier in the year.

A lot of this recent “risk-on” move has been driven by tech. The sector .SPLRCT is up 23.5% this year, making it the second-best performer in the S&P 500 (just behind energy .SPNY at 24.4%). And over the past two months, tech has absolutely ripped -- up 36.1%, just shy of its biggest quarterly surge on record (36.4% in Q4 1998).

Looking ahead, the big question is whether momentum can keep leading. That likely depends on volatility staying subdued. If we start to see turbulence again -- whether from interest rates, macro data, geopolitics, positioning, or something else -- that leadership could be tested pretty quickly.

(Terence Gabriel)

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