As we’ve highlighted in recent weeks, growth has significantly outperformed value this year, as investors have tended to favor companies with strong balance sheets, stable cash flows, and good long-term prospects for growth. But could the trend finally be turning? The Dow Jones Market Neutral Momentum Index — a pure expression of the momentum factor in the domestic equity market — suggests it is.

When this index moves higher, it means that stocks that have recently done well are continuing to do well and stocks that have recently done poorly are continuing to do poorly. Momentum has performed very well this year and has been a popular strategy because of it. In the past few weeks, however, we’ve seen a large reversal in market leadership, as shown by the dramatic drawdown in this strategy since mid-May. Since its peak on May 15th, the index has fallen 8.3%.

While it remains to be seen if this reversal can last, incremental positive news on the virus’ containment and the approaching summer months have investors feeling more confident in downtrodden sectors of the market. Strategies focused on secular growth and bond-like equities may have to take a back seat to value for a little while — provided that the economy continues to show signs of improvement, bond markets stay healthy, and investor optimism about the restart continues.


Nothing contained herein should be construed as an offer to sell or the solicitation of an offer to buy any security. This report does not attempt to examine all the facts and circumstances that may be relevant to any company, industry or security mentioned herein. We are not soliciting any action based on this document. It is for the general information of clients of Horizon Investments, LLC (“Horizon”). This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any analysis, advice or recommendation in this document, clients should consider whether the security in question is suitable for their particular circumstances and, if necessary, seek professional advice. Investors may realize losses on any investments. It is not possible to invest directly in an index.

Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. This commentary is based on public information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed herein are our opinions as of the date of this document. We do not intend to and will not endeavor to update the information discussed in this document. No part of this document may be (i) copied, photocopied, or duplicated in any form by any means or (ii) redistributed without Horizon’s prior written consent.

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