21.05.25 - Shaking off bad news - Markets ride the momentum wave

Since this year’s low on April 6, markets have known only one direction: up. The sharp V-shaped rebound was primarily driven by inflows from retail investors eager to seize the opportunity to buy equities on lower prices. At the same time, volatility has faded, returning to lower levels.

However, this upward momentum stands in contrast to the macroeconomic backdrop, where negative headlines persist and uncertainty remains high. Warnings from both the economic and corporate fronts have been largely ignored. Notably seen in the market's muted reaction to the recent US credit rating downgrade, where losses were quickly erased.

The market momentum seems to continue, for how long?

Momentum investing: an investment strategy aimed at purchasing securities that have been showing an upward price trend or short-selling securities that have been showing a downward trend.

Markets: Equity markets see a bit of a consolidation today, interest rates going up on the long end, US dollar weak while gold is up. Cryptos sideways today with Bitcoin near all-time highs.

My view: Momentum investing, today’s market behavior seems increasingly driven by such strategies. My impression is that artificial intelligence and algorithmic trading tools are reinforcing these trends, attracting a higher number of speculators and amplifying market movements.
Is this becoming the new market regime?

Meanwhile, the tariff issue seems to have faded from attention. Many investors act as if the trade conflicts have been fully resolved, despite the reality that only two limited deals have been struck, one with the UK and a 90-day arrangement with China. Several tariffs remain in place, while key measures have merely been postponed until the end of June.

How long until the tariff discussion resurfaces and disrupts market complacency?

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