Why Stocks With Momentum Are Back in Charge

In October, investors turned back toward strategies favoring fast-growing companies instead of those with cheaper valuations. As government bond yields declined across Europe, the U.K., and the U.S., the preference for growth stocks became clear.

According to Panmure Liberum strategist Joachim Klement, growth stocks are poised to lead performance in 2026 across all three markets, with bond yields—rather than earnings growth—remaining the primary driver.

Klement noted that from 2012 onward, U.S. value stocks endured a “lost decade” amid near-zero interest rates, as policymakers kept borrowing costs artificially low to stimulate post-crisis growth. However, following the inflation surge and rate hikes of 2022, value stocks had a strong rebound.

That momentum faded in October when U.S. 10-year bond yields slipped below 4%, causing value stocks to lag by 1.9%, regardless of whether measured by price-to-earnings or price-to-book ratios. Income stocks also fell behind by 1.5%, while companies with strong earnings momentum gained 1.4%.

Despite the S&P 500 reaching new all-time highs during the month, Klement reported no evidence of market exuberance or excessive optimism. His firm’s sentiment indicator returned to neutral levels, suggesting the U.S. market remains slightly undervalued relative to its fundamentals.

Looking ahead, Klement sees growth stocks leading not only in the U.S. but also in Europe and the U.K. The sectors with the most upward earnings revisions in October included resources, banks, and financial services.

Taking a longer-term view, he pointed out that historically, the cheapest U.K. stocks and those with high dividend yields have produced stronger returns, though that advantage reversed last month as yields fell.

He also highlighted encouraging signs from the U.K.’s IPO market, which is showing life after years of stagnation. In 2025, three IPOs raised £850 million, already surpassing 2024’s total of £600 million.

This recovery supports renewed optimism for growth-oriented companies, reinforced by the 1.2% outperformance of momentum stocks in October.

In Europe, easing rates—particularly after recent volatility in France—caused value stocks to underperform growth by 80 basis points in October, marking a reversal of the trend that began in late 2021.