Momentum, valuations and market leadership in 2026: Insights from Denise Chisholm - July 23, 2026

Momentum's recent strength in context

By Denise's measure of momentum, stocks with the strongest 12-month price performance outpaced the S&P 500 by roughly 20 percentage points during the first half of 2026. While that may seem extreme, she noted that momentum factors constantly evolve as leadership shifts from one group of stocks to another. Momentum's recent resurgence follows what she described as one of the weakest six-year periods for the factor relative to the broader market. In her view, that weakness was not the result of poor economic conditions. Instead, it reflected the high valuations momentum stocks carried coming out of 2020, which limited their ability to generate excess returns even as the economy and markets recovered.  Starting points matter. Valuation can play a significant role in determining how much investors ultimately benefit from market recovery.

Why valuation remains important

Strong fundamentals do not always translate into stronger investment outcomes. She pointed to the period following the pandemic when momentum stocks entered the recovery at some of their highest relative valuations since the technology bubble. Although economic growth and corporate earnings improved, those elevated starting valuations reduced the factor's ability to outperform.  Today, the picture looks different. Denise noted that momentum valuations have largely returned to more typical levels. While she did not suggest investors should be overly aggressive, she also indicated that current valuations do not appear to present the same challenges seen several years ago. Viewed through that lens, momentum's recent gains may be less about excess enthusiasm and more about a factor catching up after an extended period of underperformance.

Resilient earnings continue to support the market

Beyond valuations, Denise highlighted the resilience of U.S. companies and corporate earnings. Despite concerns ranging from commodity price swings to tariffs and other economic shocks, many companies have continued to remain profitable. While she stopped short of describing the economy as particularly strong, she observed that it has remained resilient rather than contractionary. Looking ahead, Denise pointed to several forward-looking indicators that suggest economic activity could become more dynamic over the next 18 months. If that occurs, it could provide further support for growth-oriented areas of the market, including momentum.

Why the U.S. continues to stand out

While momentum opportunities exist globally, Denise noted that the U.S. appears well positioned relative to many international markets, supported by a combination of growth and valuation characteristics. She pointed out that technology stocks in emerging markets are trading at historically elevated valuations relative to their U.S. counterparts. According to her research, the more expensive emerging market technology stocks become relative to U.S. technology stocks, the less likely they have been to outperform. While emerging markets continue to offer growth opportunities, much of that growth may already be reflected in current valuations. By comparison, many developed international markets appear less expensive but face slower growth prospects.

Momentum leadership is broadening

Although technology remains a major driver of momentum performance, leadership has begun to expand beyond a single area of the market. Technology and communication services have provided sustained momentum leadership in recent years. At the same time, industrial companies have also begun to show positive momentum characteristics. In particular, Denise highlighted industrial businesses that could benefit from a recovery in manufacturing activity and earnings growth. Transportation companies and other economically sensitive industrial segments may be positioned to participate if that recovery continues. She noted that broader participation across sectors is generally constructive for a secular bull market.

How energy fits into the current market environment

Not every sector appears equally attractive from a momentum perspective. Denise acknowledged that many energy companies have become more disciplined and profitable compared with past cycles. However, she noted that fluctuations in commodity prices can quickly influence valuations and investor expectations. From a quantitative perspective, energy's improved profitability does not necessarily translate into the most attractive risk-reward opportunity. As a result, she suggested investors should be cautious about assuming today's conditions are structurally different from previous cycles.

Looking beyond the AI investment cycle

Questions about AI-related capital spending remain a key focus. Denise argued that even if capital expenditures ultimately come in below expectations, the outcome may not be as straightforward as many assume. Lower spending could reflect greater efficiency rather than weaker demand. She also noted that if economic growth continues to broaden, other areas of the market could contribute more meaningfully to earnings growth, reducing dependence on a single investment theme.

Conclusion: Momentum's resurgence may be part of a longer recovery