Differentiating Momentum in Financial Markets

The financial market in 2021 saw a surge in low-quality investments driven by factors such as vaccines, reopening, FOMO, SPACs, memes, and NFTs, reminiscent of the late 1990s speculative mania. In the late 1990s, momentum was a dominant factor, driven by AI and internet themes. However, while momentum continued in both eras, the fundamental factors driving it differed significantly. In the late 90s, negative earnings were correlated with momentum, while in 2021 factors like high return on equity, strong free cash flow, and profitability were more closely associated with momentum.