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
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.
Concentration risk is the risk of amplified losses that may occur from having a large portion of your holdings in a particular investment, asset class or market segment relative to your overall portfolio.
Indices are unmanaged and investors cannot invest directly in an index. Unless otherwise noted, performance of indices does not account for any fees, commissions or other expenses that would be incurred. Returns do not include reinvested dividends.
The S&P 500 Index is a market capitalization–weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent US equity performance.
The MSCI USA Index is designed to measure the performance of the large and mid cap segments of the US market. With 623 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in the US.
The MSCI Europe Index captures large and mid cap representation across 15 Developed Markets (DM) countries in Europe. With 429 constituents, the index covers approximately 85% of the free float-adjusted market capitalization across the European Developed Markets equity universe.
The MSCI Japan Index is designed to measure the performance of the large and mid cap segments of the Japanese market. With 203 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in Japan.
The MSCI Emerging Markets Energy Index includes large and mid cap securities across 25 Emerging Markets (EM) countries*.
All securities in the index are classified in the Energy sector as per the Global Industry Classification Standard (GICS®).
The MSCI ACWI Index is a free float‐adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. The MSCI ACWI consists of 46 country indexes comprising 23 developed and 23 emerging market country indexes.
