SPMO: A Momentum ETF with a Proven Track Record and Strong Holdings

The Invesco S&P 500 Momentum ETF (SPMO) invests 90% of its assets in S&P 500 Momentum Index companies that have strong performance. It focuses on names with high momentum, as measured by price changes and earnings growth. The fund aims to outperform the broader market by capturing the momentum factor.

The S&P 500's performance in 2025 has been a study in contrasts, with the Federal Reserve's cautious approach to rate adjustments and the tech sector's dominant earnings growth driving the index to record highs. The Invesco S&P 500 Momentum ETF (SPMO), which focuses on companies with strong performance, is at the forefront of this dynamic.

The Federal Reserve's cautious stance has provided a tailwind for equities, particularly for sectors sensitive to borrowing costs. The market has priced in a 93.2% probability of a September rate cut, with the Fed Funds rate expected to drop from 4.25–4.50% to 3.75–4.00% by year-end [1]. However, the Fed's impact has been tempered by structural challenges such as inflationary pressures and tariff policies.

The tech sector, led by the "Magnificent 7" companies, has delivered outsized earnings growth, accounting for 26% of the S&P 500's year-over-year earnings growth in Q2 2025. Companies like NVIDIA, Microsoft, and Alphabet have leveraged AI and infrastructure investments to deliver robust earnings. This sector-specific momentum has created a virtuous cycle, with strong earnings justifying premium valuations and attracting capital inflows [1].

The divergence between tech and broader market performance is stark. While the S&P 500 has risen 9.64% year-to-date, the equal-weight S&P 500 has outperformed the cap-weighted index, signaling a rotation away from megacap tech stocks. This rotation highlights a key risk: overreliance on a narrow set of companies can create fragility [1].

Investors must balance central bank signals with sector fundamentals. The S&P 500's 29% rally from April lows was partly fueled by rate cut expectations, but the index's performance has remained resilient even as the Fed delayed action. This suggests that earnings growth, not just rate expectations, has been the primary driver [1].

For the Invesco S&P 500 Momentum ETF (SPMO), the focus on high-momentum companies aligns well with the tech sector's earnings dominance. However, investors should also consider diversifying exposure to mitigate risks from overreliance on megacap tech stocks. Allocating to real assets and quality large-cap stocks can provide ballast [1].

In conclusion, the 2025 market environment reflects a shift in the balance of power between macroeconomic policy and sector-specific momentum. While the Fed's rate cuts remain a critical variable, the tech sector's earnings growth has proven to be the more immediate and potent driver of the S&P 500's performance. Investors must navigate this duality by combining a watchful eye on central bank signals with a deep dive into sector fundamentals.

References:
[1] https://www.ainvest.com/news/fed-tech-earnings-drives-market-2025-2508/
[2] https://www.tradingview.com/news/beincrypto:cee044d4a094b:0-ethereum-etfs-post-first-weekly-outflows-after-3-months/