Mega-Cap Momentum Stalls Over 90 Days as Value Holds Ground Amid Factor Rotation
After a strong run, momentum-oriented mega-cap equities show signs of recent underperformance, driving shifts in quantitative factor models.
Tradesnaut Quant Research Desk · September 28, 2026 · 6 min read · AI Market Analysis
Key takeaways
- Momentum-focused equity ETFs have underperformed value strategies significantly over the past 90 days, despite stronger longer-term gains.
- Quantitative factor models are actively rebalancing away from previously dominant mega-cap technology, as AI's economic impact broadens beyond a narrow set of beneficiaries and valuations are scrutinized.
- Watching for sustained shifts in interest rates, geopolitical stability, and further earnings dispersion will be crucial in determining the longevity of this factor rotation.
What changed
The market's narrative around mega-cap equity leadership has begun to shift, with quantitative factor dispersion pointing to a notable divergence in performance. Over the past 90 days, the iShares MSCI USA Momentum Factor ETF (MTUM) has seen a decline of -5.75%, contrasting sharply with the Vanguard Value ETF (VTV), which is nearly flat with a -0.03% change over the same period. This recent underperformance of momentum strategies occurs even as MTUM boasts a 25.47% gain over the last year, outpacing VTV's 20.58% rise and the S&P 500 ETF (SPY)'s 17.81% increase. This short-term reversal suggests a challenging environment for strategies reliant on recent price trends, especially as the broader S&P 500 is down -0.57% today, with MTUM registering a larger daily drop of -0.77% than VTV's -0.56%.
The mechanism
This factor rotation is not sudden but reflects an ongoing re-evaluation of market leadership. Momentum, which largely benefited from the sustained rally in mega-cap technology and AI-driven stocks in 2025, faced a significant script flip in 2026 as value strategies took the lead, according to YouTube's 'Momentum vs Value ETFs 2026' analysis from September 16, 2026. This shift was attributed to stretched tech valuations, prompting investors to flow into more economically sensitive businesses such as industrials and financials. The broadening impact of AI is also a key mechanism. While AI investment was initially concentrated in large technology companies, demand is now expanding across industrials, utilities, energy, infrastructure, and capital equipment, as noted by Prosperity—An EisnerAmper Company in July 2026. This broader participation beyond a handful of mega-cap names reduces market concentration and increases cross-sectional equity dispersion, making broad market exposure less effective than careful security selection, as Seeking Alpha highlighted in July 2026. Elevated interest rates, influenced by persistent inflation and geopolitical tensions, further support value's appeal, as value companies are considered shorter-duration assets that perform better in such regimes, according to Ventum Financial in September 2026.
Who is exposed
Companies that benefited disproportionately from the earlier, narrow AI-driven momentum rally are now facing increased scrutiny. For instance, Intuit (INTU) experienced a significant downturn, falling 55.44% year-to-date by September 23, 2026, driven by fears of agentic AI competition and a projected slowdown in fiscal 2027 revenue growth to between 9% and 10% from 13.9% in fiscal 2026. Conversely, companies deeply embedded in AI capital expenditures, like chipmakers, continue to show strength. Chipmakers and their equipment suppliers are projected to see a 126% increase in third-quarter earnings, the highest in the technology sector, according to The Motley Fool in September 2026. Micron Technology (MU), a key memory chip supplier, was up more than 240% year-to-date as of September 8, 2026, benefiting from high AI capital expenditures. The mid-September 2026 rebalancing cycle of various index-based ETFs also directly impacted exposures, with the VictoryShares Free Cash Flow ETF (VFLO) adding Micron Technology with a 4.20% weight and IBM at 2.20%, while the American Century US Quality Growth ETF (QGRO) added Amazon but exited NVIDIA, as reported by VettaFi on September 28, 2026. This demonstrates how quantitative strategies are dynamically adjusting portfolios to reflect the evolving market landscape.
Quantitative Outlook
The current market environment underscores the cyclical nature of factor performance and the growing importance of quantitative multi-factor risk models. While value significantly outperformed growth for much of 2026, with Value up 23.15% against Growth's 4.46% year-to-date by early September 2026 according to James Investment, recent trading data suggests a nuance. Last week, growth stocks outperformed value, with gains concentrated in large-cap growth and the tech sector. This indicates that while the broader 2026 trend favored value, the immediate momentum is still capable of swinging back, especially within segments of mega-cap technology. The increasing dispersion across sectors and companies, driven by factors like AI adoption, geopolitical dynamics, and differing earnings trajectories, demands a more granular approach to portfolio construction. Quantitative models are continuously rebalancing to capture these shifts, as seen in the recent index adjustments where certain mega-cap names were added or removed from factor-based ETFs. Investors should monitor earnings reports closely, as robust S&P 500 earnings growth, tracking around 27% for Q3, extends beyond mega-cap technology into infrastructure-linked sectors, according to Neuberger Berman on September 28, 2026. Any deceleration in capital expenditure or significant changes in long-term Treasury yields, currently at elevated levels, could alter the balance between growth and value, triggering further rebalancing events across quantitative portfolios.
Tags: Momentum, Value Investing, Mega-Cap Equities, Factor Investing, AI Market Impact