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Momentum Strength for Market Insight

Written by: Benjamin Bimson CIMA®, CMT® / CIO, BCJ Financial Group

Looking to momentum as an important datapoint for market insight.

As we complete more than a year of astounding market returns, it is not surprising to ask how long this move up will last. There are no shortage of anecdotal responses to this line of thought. It’s important to hold strongly to maintaining discipline and sticking to facts, and to look at history as a guide of how things have played out in the past. However, it is also important to remain aware of the current environment and stay disciplined to examine facts rather than hype.

One important datapoint that we can look at for both historical and current information is momentum. Momentum measures the strength of long-term trends, and at the same time develops to help strain out the noise of loud, and often frightening, theories posed in the media. Momentum has been a persistent measure that historically has relevance to investors looking to actively manage risk exposures to the stock market.

In examining momentum over the past 30 years, there are few timeframes where momentum strength has been as strong as it is today. Aside from today, ’89, ’97, ‘03- ‘04 and ‘09- ‘10 are the only other year that have seen the unusually high momentum strength. In every one of those years, stock markets, as measured by the MSCI All-County World Index, have remained strong in the 6 months following those observations. Additionally, recessions during those timeframes came no sooner than 9-months afterwards.

However, looking at the data a closer seems to indicate that spikes after or during a recession were indicative of a new bull-market cycle that lasted much longer, often lasting years. Below is a chart that better illustrates the realities of momentum.

The momentum data provided does not mean that we will not have meaningful pullbacks, and we could still see a correction or even a slowdown in market returns. However, data supports the thesis that we are in early phases of a new bull market and not on the precipice of a bear market. Unless there was to be an exceptionally large breakdown in momentum, data doesn’t support the expectation of a bear market developing soon.


Investment Advisory Services offered through BCJ Capital Management LLC., an (SEC) Registered Investment Adviser.

Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed, and past performance is no guarantee of future results. For specific tax advice on any strategy, consult with a qualified tax professional before implementing any strategy discussed herein. BCJ FG 21-53

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