Although rarely mentioned in the 2026 outlook, momentum nevertheless dominates recent stock market performance.

The great omission from market analysis

On reading strategists’ studies on the European stock market outlook for 2026, one topic seems to us to have been insufficiently highlighted. Indeed, they discuss the reallocation of capital flows, and whether or not the performance of banks or semiconductors will continue, but make no mention of momentum. Yet if there is one investment factor that delivered an incredible performance last year and is continuing its run at the start of this year, it is momentum.

‘Momentum’: what are we talking about?

Let’s first define this famous momentum: here, we are referring to ‘price momentum’. Momentum reflects an asset’s tendency to continue rising when it has already risen over a past period (generally between 3 and 12 months), which can be simply summarised as: ‘yesterday’s winners continue to win today’. It differs from ‘earnings momentum’, which focuses on companies showing the strongest earnings growth or the most significant upward revisions to their earnings forecasts by financial analysts.

We therefore focus solely on rising share prices and not on company fundamentals, even though the two are generally quite correlated over time, as markets are – for the most part – efficient. To illustrate this factor, we draw on the long/short momentum portfolios of Bank of America and Goldman Sachs.

The performance of the momentum factor

This factor has therefore delivered spectacular performance in recent months, a trend that is not only continuing but even appears to be intensifying at the start of this year. Indeed, in just two months, the factor has recorded a performance well above its annual average over the last ten years. If we annualise the performance recorded in January and February 2026, we would expect returns of over 90% and over 130% respectively for the two momentum baskets, equivalent to three to four times the performance of 2025, which was already an all-time record.

Annual change (in %) of the Bank of America and Goldman Sachs Euro Long-Short Momentum baskets

Source: Bank of America and Goldman Sachs, analysis by Mandarine Gestion

What are the prospects?

The persistent outperformance of the winners reflects an imbalance between buying flows (numerous) and selling flows (more rare). If this is accompanied by significant upward revisions to earnings estimates, it will be of a ‘fundamental’ nature and will therefore be deemed legitimate. But if this is not the case, or only to a much lesser extent, then it will be purely technical, or even speculative in the worst-case scenario, with a high risk of a ‘reversal’.

Without definitively settling the fundamental/speculative debate, two observations seem important to us. Among this cohort of winners are many companies for which the sharp rises in share prices are largely uncorrelated with the more modest revisions to their earnings. The utilities sector is a case in point: investor enthusiasm, driven by the sector’s key role in the data centre boom, far exceeds expectations for short-term earnings growth. This is not problematic in itself, but suggests that investors are factoring in more optimistic medium- to long-term scenarios to justify the immediate rise in these companies’ valuation multiples.

Performance of the Stoxx Euro Utilities share price (in orange) and earnings expectations for the following 12 months (in green)

Source: Bloomberg, Mandarine Gestion analysis

Second source of uncertainty: the increased volatility in this factor’s performance this year. Indeed, the exceptional outperformance of the momentum factor in recent months has unfortunately been accompanied by greater volatility in this performance and periods of sharp reversals, particularly evident during February. The risk-return profile of these strategies is therefore deteriorating due to this increased volatility, even though performance remains very positive. Investors cannot afford to ignore these technical factors.

Daily change (in %) of Goldman Sachs’ Euro Long-Short Momentum Basket

Source: Goldman Sachs, Mandarine Gestion analysis

The well-known investor adage “don’t catch a falling knife” serves as a reminder of how much simpler and more lucrative it often is to invest in winners than to bet on a rebound from losers. However, these winners must still deliver the expected financial performance, and investors must also remain aware of the more erratic behaviour of the momentum factor, which can make unwinding positions particularly painful.

Momentum: a powerful driver of performance… at risk of overheating?

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