The Wall Street Momentum Traders Are Having Their Best Year in Three Years

September proved to be a turbulent month for the global economy. The U.S. government shut down, job growth lost momentum, and the debate over central bank independence grew louder. Yet despite all the noise, financial markets told a different story. Across commodities, equities, and currencies, investors who stuck with momentum trades betting that winners would keep winning enjoyed their best run in three years.

‍

Gold jumped 12%, marking its eighth monthly gain in nine months, while the Japanese yen continued to weaken against the U.S. dollar. Equity markets from New York to Seoul extended a rally that has now added roughly $35 trillion in value to global stocks. Momentum was the name of the game, with investors chasing returns across nearly every asset class a striking reversal just a few years after such trades collapsed amid Donald Trump’s early tariff wars.

‍

This powerful run has left traditional active managers struggling to keep pace. According to Jefferies Financial Group Inc., only 22% of long-only active funds have managed to outperform their benchmarks so far in 2025 the weakest showing on record. While fear of missing out continues to drive investors into riskier positions, other forces have been quietly supporting the rally.

‍

Strategists at JPMorgan Chase & Co. note that liquidity the broad measure of money circulating through bank accounts, money-market funds, and the financial system has been steadily expanding over the past two years. This rising tide of cash has created a powerful tailwind for asset prices. Combine that with a Federal Reserve taking a more dovish stance, and the result is an environment that favors buoyancy across markets.

‍

“Despite all the negative headlines, investors clearly don’t want to miss out on the rally,” said Joseph Tanious, chief investment strategist at Northern Trust Asset Management. “Concerns that weighed heavily on the market earlier this year have eased, and we now have more clarity.”

‍

While active managers are faltering, momentum-driven investment strategies are thriving. Commodity-trading advisers (CTAs), which ride price trends across markets, saw their benchmark index jump nearly 6% in September. Likewise, the iMGP DBi Managed Futures Strategy ETF (DBMF) recorded its best month since 2022. The rebound comes after a challenging start to the year, when shifting economic narratives and Trump’s unpredictable policy decisions forced investors to price in everything from runaway inflation to deep recession.

‍

Now, sentiment has flipped. Trump’s willingness to soften the harshest parts of his trade war has restored confidence in the markets. Meanwhile, the Fed’s growing focus on a weakening labor market rather than inflation has further reassured investors. “There’s a lot of faith in the Fed put,” said Brad Conger, chief investment officer at Hirtle Callaghan. “Everything is being interpreted in the most optimistic way possible.”

‍

That optimism was evident again this week, even as investors shrugged off the government shutdown and delayed economic reports, including the closely watched U.S. jobs data. The S&P 500 rose 1% for the week, building on its 3.5% gain in September. Gold extended its rally for a seventh straight week, while the dollar maintained its broader downtrend.

‍

According to JPMorgan strategists led by Nikolaos Panigirtzoglou, strong liquidity continues to underpin market strength. They found that Treasury operations have pushed money-supply growth ahead of overall economic output, sending cash flowing into stocks and credit markets. The trend, they predict, should continue to support asset prices in the months ahead.

‍

Another source of liquidity investor inflows has also played a major role. Virtually every corner of the exchange-traded fund (ETF) universe, from bonds to commodities, attracted new capital in September. U.S.-focused ETFs pulled in $141 billion during the month, the third-largest inflow on record, according to Citigroup Inc.

‍

“What stood out was the sheer breadth of those inflows across asset classes,” said Scott Chronert, Citi’s chief U.S. equity strategist. “There’s still a lot of money looking for a place to go.”

‍

Momentum-focused ETFs have been among the biggest winners. The iShares MSCI USA Momentum Factor ETF (MTUM) has attracted about $2.8 billion so far in 2025, putting it on track for its strongest year of inflows since 2018. The fund gained 5% in September and is up roughly 23% for the year. Similarly, a Goldman Sachs index of high-beta momentum stocks surged 17% last month.

‍

For active fund managers who rely on traditional metrics like profit growth or valuations, this relentless momentum poses challenges. Jefferies data shows that the proportion of stock-picking funds outperforming the market is on pace for its lowest level since at least 1999. Many managers have lagged because they’ve underweighted technology stocks the S&P 500’s best-performing sector in 2025, fueled by unshakable enthusiasm for artificial intelligence.

‍

That underperformance may soon force portfolio managers to chase the rally into year-end. “Right now, the market is sending a clear message fear is taking a back seat,” said Ben Fulton, chief executive officer of WEBs Investments Inc., an ETF provider specializing in volatility-managed portfolios. “If you’re not invested, you risk being left behind.”

‍