Momentum and growth had something to say about the shift to value/quality investing in April. The two factors dominated last month, accounting for a total return of 19.3% in the S&P 500 Momentum index and 16% in the S&P 500 Pure Growth index based on data from S&P Global.
Given the recent volatility, more investors have been gravitating to value and quality in response to the uncertainty from higher-for-longer rates as well as ongoing geopolitical strife. The April performance for momentum and growth, however, reminded investors that the two factors are alive and well.
Key Takeaways:
- Despite a recent investor shift toward safer value and quality stocks, momentum and growth factors surged, driving the S&P 500 to a massive 10.5% monthly return — its best since November 2020.
- As investors chased market upside and volatile, high-beta stocks, defensive and capital-preservation strategies like Low Volatility and Dividend Aristocrats drastically underperformed the benchmark.
- While the Magnificent Seven tech giants drove nearly half of the S&P 500's monthly gains, the rally was broader than expected, with midcap and standard large-cap stocks in tech, industrials, and discretionary sectors also generating significant alpha.
See More: Markets Look Past War Risks as Earnings Remain Strong and Broadening Continues
Risk-on Back On
Overall, it was a strong run for U.S. equities in April. Thanks in large part to AI, the S&P 500 reached various multiple all-time highs, culminating in a blistering 10.5% return for the month. This marked the single best month for the U.S. bellwether index since November 2020, along with the third-highest monthly return of the last 10 years. Needless to say, "risk-on" was definitely on in April.
As mentioned, AI was a strong contributor for the month. Earnings from household tech companies were the primary catalyst, inviting megacaps to resume their leadership role as dominant contributors.
When it came to factor performance and outpacing the S&P 500, the disparity starts to show. According to the S&P Dow Jones Indices April Factor Dashboard, just four out of 17 reported factor indices outperformed the S&P 500.
Momentum and Growth Ran Hot
As discussed, it's no surprise that growth and momentum were highlighted in these four factors. At the top of the factor index leaderboard was the S&P 500 Momentum, which stood head and shoulders above the rest with a staggering 8.8% outperformance relative to the S&P 500. The S&P 500 Pure Growth and S&P 500 High Beta were not too far in the rearview mirror, outperforming the S&P 500 index by 5.8% and 5.5%, respectively.
If macroeconomic factors align that are conducive to momentum and growth dominance, the value-based comeback could be in jeopardy. April's data suggests that investors are favoring volatile, growth-oriented companies exhibiting high beta to capture market upside. The high beta factor acted as an operational accelerator, transforming a strong market trend into exceptional returns.
See More: S&P Global Services PMI: Marginal Improvement in April
Defense Was Offensive
Defense works well in sports, but not for factor investing during the month of April. As capital flooded into momentum and growth on the outperforming end of the spectrum, defensive factors lagged on the other.
The S&P 500 Low Volatility Index sat at the absolute bottom of the performance spectrum, trailing the benchmark by 8.5%. Not faring much better was the S&P Low Volatility High Dividend Index, which only managed a 2.1% total return for the month.
Other traditional defensive factors like Dividend Aristocrats, Quality, and Value, similarly couldn't keep pace with the S&P 500. The return of "risk-on" meant that investors dumped capital-preservation strategies in order to catch the upswing of the broader market.
Still Looking Magnificent
Heading into 2026, there was skepticism on whether the Magnificent Seven could continue leading the market. In turn, this pushed more investors towards value strategies, as megacap valuations look stretched. So far, they're still stretching.
Given their massive weights in the S&P 500 index, the strong performance of the Mag Seven left other constituents in the dust. S&P Global data revealed that 23.2% of S&P 500 stocks outpaced the broader index in April. Ultimately, the Magnificent Seven contributed nearly half — 5.1% of the total 10.5% rise — of the index's overall monthly gains.
Outside the Mag 7
Despite the strong run of the Magnificent Seven, the data also reveals that they weren't the only drivers of performance for the Momentum, Pure Growth, and High Beta indices. The vast majority of their relative gains were from stocks outside the Magnificent Seven, highlighting performance dispersion as opposed to seven stocks monopolizing the alpha. These top three factor indices actually maintained substantial underweights to the Mag Seven group, ranging from 14.9% to 28.4%.
That said, April's factor performance data reveals that last month's rally wasn't concentrated in the Magnificent Seven despite their strong run. Midcap and standard large-cap growth components within tech, industrials, and discretionary sectors also performed well. So while the Magnificent Seven was still magnificent, they weren't standing alone in the alpha-generating room.
What's Ahead in 2026?
As difficult as it is to believe, the halfway point of the year is rapidly approaching. Delving deeper into Q2, S&P Global's factor data offers critical insights for financial advisors. The underperformance of low volatility versus the outperformance of momentum and growth underscore a classic market inversion.
Overall, when it comes to factor investing, it certainly helps to tilt towards the right one. While portfolios heavily weighted toward passive indexing reaped April's rewards, those implementing active factor tilts had to ensure they were aligned with cyclical tailwinds to capture alpha.
If geopolitical tensions ease and inflation forecasts stabilize, get out of momentum and growth's way. The procyclical wave that carried the S&P Momentum and High Beta indexes to new heights in April could signal a broader, more sustainable market expansion.
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