Momentum
Momentum · Price Momentum · Investment Factor
The tendency of stocks that have risen in the past to continue rising — and of stocks that have fallen to continue falling.
What it is
Momentum is an investment factor describing an empirically observed phenomenon: past winners tend to be winners in the near future as well (and vice versa).
Price Momentum: Stocks with the best returns over the past 3–12 months (excluding the last month due to mean-reversion) statistically outperform the market in the short term.
Momentum investors do not buy based on fundamentals but based on trend. It is a systematic approach exploiting behavioral finance — investors react slowly (underreaction) to new information, causing gradual repricing.
Earnings Momentum: The trend in analyst EPS estimate revisions. Stocks where analysts consistently raise estimates (estimate revisions up) tend to perform better.
Why track it
Momentum is empirically one of the most robust investment factors — it works across markets and decades. But it says nothing about the fundamental value of a company.
For a fundamental investor, momentum is a secondary indicator:
- →Negative price momentum in an otherwise excellent company → potential buying opportunity
- →Positive momentum + improving fundamentals → strong combination
Real-world example
Microsoft SMA 200 (200-day moving average) is a technical momentum indicator. Price below SMA200 = bearish momentum. In April 2026 MSFT was trading below its SMA200 (~$420–430) at a price of ~$382 — negative technical sentiment despite strong fundamentals.
Watch out for
Momentum can reverse quickly — especially in periods of market turmoil or when negative news is released. Strategies built purely on momentum are vulnerable to so-called momentum crashes (sudden reversals).