Momentum Is A Hell Of A Drug

Today’s letter is brought to you by MoonPay! Join over 30 million users who trust MoonPay as their universal crypto account. We make it easy to buy and sell crypto in over 180 countries, with no-to-low fees and all your favourite payment methods like Venmo, PayPal, Apple Pay, card and more. MoonPay is the only account you need in the DeFi ecosystem. Trade, stake and build your portfolio all in one place. Start now and get zero MoonPay fees1 on your first transaction. CLAIM ZERO FEES To investors, Every morning we wake up to new headlines from a well-known investor predicting a market crash is right around the corner. They always find some esoteric reason why the supposed “bubble” is going to pop, which will destroy your portfolio and condemn the US economy to a decade of pain. These predictions sound smart, but they never play out. There are two main reasons for this. First, the US economy and asset prices are incredibly resilient. Since 2020, we have seen a global pandemic, nearly 10% inflation, the fastest rate hike in history, multiple double-digit corrections, 3 of the 5 largest bank failures in history, sweeping tariffs, and the shutting of the Strait of Hormuz. None of that has been able to derail asset prices though. The US stock market sits near all-time highs and companies are producing more revenue and profits than ever before. To hammer this point home, we can see that “the S&P 500 will add more EPS this year alone compared to the combined EPS gained during 2016-2021.” That is ridiculously bullish for investors. Jordi Visser explained this well during my conversation with him on Saturday: This resilience is interesting because it signals the economy may be more dependent on money printing than anything else. As long as the government is spending trillions, the economy and stocks are unlikely to go through a prolonged crisis. On top of that, it is fairly clear the US consumer and investors alike have convinced themselves that nothing can break the market, so they should keep spending money and keep buying assets. The second reason the market continues to defy the pessimists is momentum. Things in motion tend to stay in motion and the stock market has a lot of motion over the last few years. X user Gurgavin highlighted some interesting data yesterday about the performance of a momentum-driven strategy over the last 30 years. He initially looked at what would have happened over the last 15 years if you simply bought the best performing stock from the prior year. The results speak for themselves: $1,000 invested in the S&P 500 would have turned into $8,000, while $1,000 invested in the momentum strategy would have turned into $176,114. If you take the same strategy over the last 30 years, you would have still outperformed but it would require you to have stomached a 97% drop after the dot come bust and then waited 23 years until the momentum strategy regained its 1999 high. Lastly, Gurgavin showed the momentum strategy over the last 30 years with a 35% stop loss added (if the single best performing stock from the prior year falls more than 35%, you sell and sit in cash until the following January 1st). $1,000 invested in S&P 500: $1,752 $1,000 invested in last year’s winners: $89,418 $1,000 invested in last year’s winners plus 35% stop loss: $1,514,581 Now as many of you know, I am not a big trader, but I find it fascinating that this single momentum strategy is indicative of the broader market and economy. If you chased momentum over the last decade, you have done very well. Remember, things in motion tend to stay in motion. It is going to remember that resilience and momentum are the name of the game now. You will hear more pessimists show up and claim the latest fear is going to destroy your hard-earned economic value. Given the current facts, I find that perspective to be misplaced at best. Fear sells, but it doesn’t create returns. Be an optimist. Ask yourself “what if everything goes right?” And realize we are living through one of the most electric times in human history. It is hard to remember how fortunate we are sometimes. I hope you have a great start to your week. I will talk to everyone next time. - Anthony J. Pompliano Founder & CEO, ProCap Financial (Nasdaq: SVIA) Bitcoin Is the Toll Collector of the AI Economy Jordi Visser is a veteran macro investor with 30+ years of experience and the author of the VisserLabs Substack. In this conversation, we break down the coming “bankpocalypse,” why AI agents will disrupt banks and big tech, and whether AI models are becoming commoditized. 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