In a sharp reversal in market performance factor drivers from the first quarter, momentum-oriented stocks led the pack in Q2, while low volatility was the worst-performing factor, according to the recently published Morningstar Factor Monitor from Morningstar Indexes.
The Morningstar Global Momentum Index rose more than 21% in the second quarter, outperforming all other global market factors by a wide margin. Interestingly, the Morningstar Global Low Volatility Index had the lowest return of the Morningstar Factor Indexes for the quarter. These results are quite different from the first quarter of 2025, when momentum was the second-worst-performing factor and the defensive, low-volatility factor led.
Morningstar experts attribute the strong performance of the Morningstar Global Momentum Factor Index in the second quarter to strong stock exposure within the technology and industrial sectors. Notably, the index is overweight Broadcom (AVGO) and NVIDIA (NVDA) and excludes Apple (AAPL).
Alex Bryan – Director of US Equity Index Products, Morningstar Indexes:
“The performance reversal for momentum and low volatility in the second quarter isn't surprising considering how different the market environment was in the second quarter compared to the first. While the market had been anticipating a rise in protectionism in the first quarter, the risk became more tangible when the U.S. government announced a new series of tariffs on April 2, 2025 ("Liberation Day"). This, and the subsequent pause on certain tariffs, created significant uncertainty, elevating market volatility. Yet, despite the uncertainty, stocks rallied toward the end of the second quarter. The heightened volatility of the second quarter makes the strong performance of the momentum factor even more remarkable. Momentum often struggles during periods of market turbulence or sharp reversals, as market leadership is more fluid in those environments. Yet, momentum topped the leaderboard in every region covered in this report in Q2.”
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