Navigating Midday Volatility: Momentum Investing in Underfollowed Sector Leaders

The global financial markets of 2025 are marked by a paradox: unprecedented volatility coexists with a broadening of market leadership. While the "Magnificent 7" tech giants still cast a long shadow, investors are increasingly turning to underfollowed sectors-such as energy, financials, and industrials-for growth opportunities. This shift is not merely a tactical adjustment but a structural response to the turbulence reshaping global capital markets.

The Drivers of Midday Volatility

Midday volatility in 2025 has been amplified by a confluence of macroeconomic and geopolitical forces. Renewed US-China trade tensions and erratic energy market dynamics-exemplified by Europe's "Hellbrise" phenomenon, where solar and wind overgeneration drives negative power prices around noon-have created sharp, unpredictable price swings, as noted in a Julius Baer outlook. These conditions are particularly pronounced in underfollowed sectors, where liquidity constraints and lower institutional coverage exacerbate price dislocations. For instance, energy producers in Europe have faced cash flow challenges due to these negative pricing episodes, yet technological advancements in battery storage are beginning to offset these pressures, the Julius Baer outlook adds.

The implications for momentum investing are profound. Traditional momentum strategies, which rely on sustained trends, are increasingly undermined by the stop-start nature of sector rotations. Defensive sectors, cyclicals, and mid- to small-cap stocks have taken turns dominating returns, creating "false positives" for trend-following models, according to a Wright Research analysis. This volatility is compounded by macroeconomic "noise," such as election cycles and central bank interventions, which obscure clear price signals, the Wright Research analysis finds.

Case Studies in Momentum Opportunities

Despite these challenges, midday volatility has also generated fertile ground for momentum investing in underfollowed sectors. In October 2025, several overlooked industry leaders exhibited dramatic price swings driven by earnings surprises and strategic alliances. PayPal, for example, surged 11.1% after exceeding third-quarter earnings expectations and partnering with OpenAI to integrate the Agentic Commerce Protocol into ChatGPT, according to a Yahoo Finance article. Similarly, UPS rose 8.1% following better-than-expected earnings and a $2.2 billion cost-cutting initiative. These examples underscore how momentum strategies can capitalize on sudden, news-driven price movements in sectors traditionally sidelined by investors.

The Strategic Imperative: Diversification and Patience

The 2024–2025 drawdown in momentum strategies-exemplified by the Nifty 200 Momentum 30 Index's 31.79% decline over 192 days-highlights the need for discipline and diversification, as the Wright Research analysis documents. While momentum investing remains a powerful tool, its success in 2025 requires a nuanced approach. Investors must balance exposure to high-growth underfollowed sectors with defensive assets and global opportunities. Germany's infrastructure spending plan, for instance, offers long-term growth potential in construction and civil engineering, aligning with broader structural trends like the clean energy transition, the Julius Baer outlook also observes.

Conclusion: A New Paradigm for Momentum Investing

The 2025 market environment demands a recalibration of momentum strategies. As sector leadership diversifies and midday volatility intensifies, investors must prioritize agility and patience. Underfollowed sectors-once dismissed as peripheral-are now central to capturing alpha. However, success requires rigorous risk management and a willingness to navigate the noise of a fragmented market. For those who can adapt, the rewards are substantial: a more resilient portfolio and the potential to outperform in an era of structural change.