Momentum Factor Deleveraging Pressure
Momentum factor positioning remains vulnerable to further unwinding despite recent deleveraging, as gross leverage in high-momentum stocks is still elevated on a two-year basis
Too little corroboration in the last 3 days to call a trend (6 articles). Watching for it to gain traction.
"The S&P 500 fell 0.3% for a second modest drop since setting its all-time high on Friday. The Dow Jones Industrial Average dipped 184 points, or 0.3%, and the Nasdaq composite sank 0.6%."
"The bigger issue we see is the market has been playing musical chairs as money has sloshed from momentum, to value, and now back to momentum. At some point the music stops, and participants might not be able to find a chair."
"The investor argued that fresh record highs are attracting more money into equities, creating a cycle in which declining market volatility encourages systematic and momentum-driven investors to increase leverage. 'Remember, the market going up on falling volatility forces vol-targeting funds to leverage up, and brings leverage from other momentum strategies into play,' he wrote."
"Burry said 'rising markets and lower volatility encourage volatility-targeting and momentum funds to increase leverage, which can further fuel the market rally.'"
"While gross leverage in high-momentum stocks has dropped, it remains elevated on a two-year basis, 'leaving positioning still vulnerable to further unwind,' according to a note from UBS Systematic Advisory last Thursday."
"Momentum volatility, now running hotter than the dot-com era, is flushing out hedge funds with VAR limits and retail traders chasing breakouts."