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Investing.com -- With global markets trading near record highs, investors are questioning whether momentum can continue or if a reversal looms.
Bernstein analysts addressed this in a new report, writing that “the risk of a complete momentum unwind looks unlikely in the near-term.”
Momentum has been the dominant style in 2025, with earnings momentum driving gains in most regions.
Bernstein noted that “in Asia ex Japan, earnings momentum is up 46% year-to-date, in Asia ex China, up 34% and in Japan/US/EU, up 28%/28%/32% respectively.”
In contrast, the firm said Europe has been led by price momentum, up 41%. Long-term, sector-neutral earnings momentum has been the most effective alpha strategy, especially in Asia, where it has produced a 9% CAGR over 20 years.
Still, risks are mounting. “As expected, the strong momentum rally has made these stocks quite expensive,” Bernstein warned.
Asia’s earnings momentum portfolio is said to be trading at “record high valuations on both forward P/E and P/B and above +3SD levels.” In the U.S., high earnings momentum names are at richer multiples than the top price momentum cohort, while Europe’s momentum stocks remain comparatively cheap.
Bernstein also cautioned that “the risk of peak upgrades is rising, especially in the U.S., Asia, and Japan.” The firm highlighted that American earnings momentum stocks are already near a record-high upgrade cycle, while Asia and Japan show peak bullishness seen in recent years.
Regional dynamics are said to vary. Europe looks least vulnerable, with momentum in value and earnings starting to recover, said the analysts.
By contrast, U.S. momentum remains “at record high correlation to growth stocks and against value names,” though history suggests these trends can persist.
Overall, Bernstein concluded that while a broad unwind is unlikely, “stocks with high earnings momentum in Asia and the U.S. look vulnerable.”