Written by Desmond Foo
One of the clearest market trends in recent months has been the continued outperformance of stocks that were already leading markets earlier in the year. Companies benefiting from AI-related earnings upgrades, infrastructure spending, and positive investor sentiment have continued to attract additional inflows, further reinforcing their market leadership in many ways. Performance itself has become a source of further performance, as capital continues to flow toward existing winners. This dynamic has been clearly reflected in Momentum-oriented strategies, which have significantly outperformed broader equity markets across major regions since mid-2025.
Importantly, the current momentum leadership does not appear purely speculative. Unlike many previous momentum-driven episodes, recent outperformance has been accompanied by unusually strong earnings revisions and a sharp acceleration in capital expenditure. In the US alone, S&P 500 companies reported year-on-year capex growth of 38% in 1Q26, versus just 1% growth in buybacks. Expected spending by the five largest hyperscalers has also risen to US$755 billion, around 80% higher than a year ago. This has created substantial earnings momentum for semiconductors, hardware, infrastructure, and energy-related beneficiaries, with consensus 2026 earnings estimates for AI infrastructure-linked companies rising nearly 60% since early 2025, compared with just 1% for the broader market excluding those companies.
However, increasingly concentrated Momentum leadership can also leave markets more sensitive to shifts in macro conditions, bond yields, and investor positioning. Historically, Momentum tends to perform best during periods of relative stability, when leadership remains consistent, and earnings visibility remains supportive. A deterioration in the AI investment outlook or a spike in market volatility could trigger a reversal in Momentum-led stocks if investors trim crowded leadership exposures. Conversely, a stronger-than-expected improvement in the broader macro backdrop could drive market rotations into lagging sectors and factors, allowing performance to broaden beyond the current Momentum leaders.
For investors, the key takeaway may be less about resisting current market leadership and more about recognizing how concentrated that leadership has become. While Momentum trends can persist for extended periods, excessive reliance on a single factor or market narrative can also leave portfolios more vulnerable to shifts in macro conditions and investor positioning. In this environment, diversification not only across sectors and geographies but also across factors may become increasingly important for maintaining portfolio resilience.
DISCLOSURES
DISCLOSURES
The information provided is for educational purposes only. The views expressed here are those of the author and may not represent the views of Leo Wealth. Neither Leo Wealth nor the author makes any warranty or representation as to this information’s accuracy, completeness, or reliability. Please be advised that this content may contain errors, is subject to revision at all times, and should not be relied upon for any purpose. Under no circumstances shall Leo Wealth be liable to you or anyone else for damage stemming from the use or misuse of this information. Neither Leo Wealth nor the author offers legal or tax advice. Please consult the appropriate professional regarding your individual circumstance. Past performance is no guarantee of future results.
This material represents an assessment of the market and economic environment at a specific point in time. It is not intended to be a forecast of future events or a guarantee of future results.
