3 Momentum Anomaly Picks as Recession Fears Spur Volatility

Core Viewpoint - The U.S. equity markets experienced a sharp decline due to recession fears, primarily triggered by disappointing job market data, with nonfarm payrolls increasing by only 114,000 compared to expectations of 185,000, and the unemployment rate rising to 4.3% [1] Market Impact - The sell-off led to a global market downturn, with Japan's stock market being the most affected. However, there was a partial recovery in Japan, although market volatility remained high due to the unwinding of the yen "carry trade" as the yen appreciated against the U.S. dollar [2] Investment Strategies - In uncertain market conditions, investors often turn to momentum stocks as a strategy to achieve sustained profits when traditional value or growth investing does not yield desired results [3][4] - Momentum investing is based on the principle of "buying high and selling higher," leveraging the tendency of stocks to continue in the direction of established trends [4] Momentum Investing Characteristics - Momentum investing capitalizes on the human tendency to project current trends into the future, taking advantage of the time gap before mean reversion occurs [5] - Stocks such as M/I Homes, Inc. (MHO), QCR Holdings, Inc. (QCRH), and Mr. Cooper Group Inc. (COOP) are highlighted as potential candidates for momentum investing [5] Screening Parameters for Momentum Stocks - The screening process involves selecting the top 50 stocks with the best percentage price change over the last 52 weeks, followed by identifying the 10 worst performers over the past week to find those experiencing a short-term pullback [7] - Stocks must have a Zacks Rank 1 (Strong Buy) and a Momentum Style Score of B or better to ensure high probability of success in momentum investing [8][9] - Additional criteria include a current price greater than $5, being among the top 3000 by market capitalization, and an average 20-day trading volume exceeding 100,000 [10] Featured Stocks - M/I Homes, Inc. has seen a 47.3% increase in the past year but a 12.4% decline in the past week, with a Momentum Score of A [10] - QCR Holdings, Inc. has gained 32.5% over the past year but declined 8.9% in the last week, also holding a Momentum Score of A [11] - Mr. Cooper Group has rallied 44.4% in the past year but lost 8.4% in the past week, with a Momentum Score of B [12]