This investing strategy has dominated 2026 amid a split in the stock market

An investing strategy that’s been fueled by the widening gap between market winners and losers is handily beating the S&P 500 this year.

According to Société Générale, momentum investing—a strategy that involves purchasing stocks that show strong price or earnings momentum, while selling stocks where price or earnings are waning—is coming out to be a winning strategy in the market so far in 2026.

“Pick winning stocks” might sound like an obvious move, but momentum trades are shining particularly bright this year because of an “unusual divergence between winners and losers” in the market, Andrew Lapthorne, SocGen global head of quantitative research, wrote on Tuesday.

“Current indicators suggest markets are strongly driven by these momentum factors,” Lapthorne said, pointing to strong returns for momentum strategies in the US, Europe, and Japan.

In the US, long price momentum portfolios, in which investors purchase the market’s top winners, and short price momentum portfolios, wherein they sell the market’s biggest losers, have rallied since October of last year, per SocGen’s analysis.

The iShares MSCI USA Momentum Factor ETF, a popular momentum-based fund, has risen more than 20% year to date, beating the S&P 500’s 8% gain.

It’s a winning play because the difference between the market’s top- and worst-performers has widened in recent years with the rally in all things AI. That effect appears to have intensified with the Iran war, as soaring oil prices have also fueled big gains for energy.

The spread between the market’s best-performing sector (energy) and the worst-performing sector (health care) has clocked in at 35 percentage points so far this year.

The difference between long and short price momentum portfolios, another reflection of the disparity between market winners and losers, has generally been widening since October, per SocGen’s analysis.

Fears surrounding AI disruption, hotter inflation, and geopolitical conflict are possible reasons why the disparity has grown in 2026, Lapthorne speculated, though he said the ultimate driver of the trend was “open to debate.”

“What is clear, however, is that this negative correlation between the long and short legs is extremely rare, having only been sustained during periods such as the Covid pandemic,” he wrote.