BlackRock/iShares - As Volatility Rises, Momentum Loses

Weekly Commentary Overview

Last week demonstrated how both equities and bonds have been mired in a meaningful rise in volatility, a shift partly driven by the recent tick higher in bond yields.

We don't expect more than a modest increase in rates, but even that may be enough to push volatility higher, which is likely to be a headwind for many of the most popular so-called momentum stocks.

Over the last few weeks, many segments of the market that have most benefited from momentum, such as biotech and social media companies, have been the hardest hit.

As volatility is still below the long-term average, and we are still in the early stages of the market adjusting to a more normal interest rate regime, this process is likely to continue.

This suggests investors may want to reduce their exposure to momentum strategies and increase their position in more value-oriented parts of the equity market. One such area: integrated oil companies.