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Momentum a Powerful Ally for Stocks as Whiplash Rally Rolls On

Edwin FosterMonday, May 5, 2025 6:15 am ET
33min read

The stock market’s recent volatility has been marked by a dramatic “whiplash rally,” with the S&P 500 rebounding sharply from its February 2025 peak amid shifting trade policies and sector rotations. While uncertainty lingers over tariff-driven economic headwinds, momentum continues to favor select sectors and companies, particularly those at the forefront of technological and structural shifts.

The Whiplash Rally: A Tale of Two Markets

The S&P 500’s year-to-date decline of -5.3% masks a stark divide: large-cap tech stocks like nvidia (-20.3%) and Microsoft (-11.6%) have cratered, while smaller companies and defensive sectors thrive. This divergence reflects a sector rotation driven by fears of stagflation and policy risks. Energy stocks, for instance, surged +9.3% in Q1 as natural gas prices spiked 40% over six months, while utilities and healthcare outperformed amid investor caution.

By April 2025, the S&P 500 erased early losses in a nine-day winning streak—the longest since 2004—driven by hopes of U.S.-India trade deals and optimism around corporate resilience. Yet, the index still closed April down 0.8%, underscoring the fragility of this recovery.

Ask Aime: Will the tech stock rebound?

Momentum’s Double-Edged Sword

Morgan Stanley’s analysis warns of an impending reversal for 2024’s extreme momentum stocks, which outperformed by +28%—a two-standard-deviation event. Historically, such surges lead to near-full reversals within 12 months. High momentum sectors like Broad Tech (27% of the momentum basket) and Financials (24%) face heightened risk, particularly as regional banks grapple with regulatory scrutiny and prolonged high interest rates.

However, BlackRock’s bullish stance on U.S. equities hinges on structural tailwinds: AI-driven innovation, low-carbon transitions, and private market growth. The firm’s “stay pro-risk” strategy prioritizes U.S. tech giants and infrastructure plays, betting that corporate strength will outweigh macro headwinds.

NDAQ Trend

Sector Litmus Tests: Q2 Earnings as a Barometer

Three key companies will define sector momentum in Q2:
1. Diversified Energy Company PLC (DEC): Its May 12 earnings will test whether natural gas firms can balance sustainability goals (well retirement, emissions cuts) with production growth. A drop below £3.50 could signal skepticism about its green transition.
2. Carr’s Group PLC: The agricultural firm’s May 7 results must prove margin expansion and geographic diversification can offset trade risks. A dividend hike above 4.5 pence/share would validate its shift to pure-play agriculture.
3. Directa Plus PLC: Its mid-May audited results will reveal if graphene innovation can scale, with revenue growth critical to its status as an industrial disruptor.

Risks Lurking in the Shadows

The rally faces three critical risks:
- Trade Escalation: U.S. tariffs on steel, aluminum, and Canadian energy exports have already triggered a -10.6% two-day selloff in March. Retaliatory measures could amplify inflation and disrupt global supply chains.
- Earnings Pressures: Companies like NVIDIA (-20.3% YTD) face margin squeezes from tariff-driven input costs. Morgan Stanley’s reversal thesis looms large for overvalued momentum stocks.
- Policy Uncertainty: The Federal Reserve’s reluctance to cut rates below 4% keeps long-term bond yields volatile, while geopolitical fragmentation fuels inflation.

Conclusion: Riding Momentum with Caution

The whiplash rally reflects a market torn between optimism and anxiety. While momentum continues to favor sectors aligned with structural trends—AI, energy transition, and private markets—investors must remain selective.

  • Buy: U.S. tech leaders (e.g., NVIDIA, Microsoft) if earnings surprises materialize, and infrastructure equities benefiting from decarbonization.
  • Avoid: Overvalued momentum stocks in cyclicals and sectors exposed to trade risks.
  • Monitor: Q2 earnings from DEC, Carr’s, and Directa Plus to gauge sector resilience.

The S&P 500’s -9.5% decline from its February peak highlights the stakes: momentum may prevail, but only for companies that balance innovation with execution. As BlackRock notes, the path forward hinges on “financing the future”—a mantra that favors the bold but rewards the disciplined.

DEC, DRCT Trading Volume, Total Revenue

In this volatile landscape, investors must treat momentum as both ally and adversary: its power can lift portfolios, but its reversals demand vigilance.

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Rm.r
05/05

I made over 150k here with an expert’s help and recommendation 🤗

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Rm.r
05/05
@Rm.r

She’s great connect 🇺🇸+.𝟣𝟧𝟨𝟥𝟤𝟩𝟫𝟪𝟦𝟪𝟩

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bird-bath-and-beyond
05/06
@Rm.r How long were you holding those stocks? Any specific plays that worked out?
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Teekay53
05/06
@Rm.r Good.
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Mylessandstone69
05/05
Whiplash rally got me 🤯. Feels like market's on a wild rollercoaster. Hold on tight, folks.
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tielgee
05/05
Tech giants like $NVDA might bounce back if earnings surprise, but don't chase—quality over momentum.
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Particular-Ad-8433
05/05
Tariffs still wildcards, brace for market whiplash 😂
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LurkerMcLurkington
05/05
@Particular-Ad-8433 Think tariffs will spike again?
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Head_Product412
05/05
Staying pro-risk with BlackRock vibes, loving $AAPL
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threefold_law
05/05
Sector resilience in Q2 earnings will tell us a lot; pay attention to guidance and margin calls.
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bottlethecat
05/05
Momentum reversal risk looms, diversify your plays.
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MacaroniWithDaCheese
05/05
Graphene innovators like Directa Plus could disrupt, but scale is the question—watch revenue growth closely.
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Johnk812
05/05
@MacaroniWithDaCheese Scale's the goal, but watch out, market's fickle.
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serenitybybowie
05/05
Momentum's a double-edged sword. 🚀 It can boost your portfolio, but reversal can hit hard. Be cautious!
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mtrosejibber
05/05
@serenitybybowie True, momentum's a wild ride.
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CorneredSponge
05/05
Rotating to utilities and healthcare might hedge against policy risks; diversification is key.
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Bitter_Face8790
05/05
Energy stocks riding high, but can they sustain?
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GlobalEvent6172
05/05
Staying pro-risk with BlackRock makes sense, but be cautious on cyclicals and trade-exposed sectors.
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CueTheTrombone
05/05
@GlobalEvent6172 What’s your take on BlackRock’s strategy?
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sniper459
05/05
Geopolitical fragmentation scares off investors; inflation risks are real and lingering. 😬
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Urselff
05/05
Tech giants due for rebound, but watch valuations.
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MirthandMystery
05/05
Energy stocks riding high, but can they sustain? Watch $DEC's green transition play out.
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D4K4TT4CK
05/05
@MirthandMystery Sure, DEC's got skills, but can they keep up the pace?
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ButlerWithaJumper
05/05
@MirthandMystery Energy stocks might spike, but watch for the dip.
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