Momentum ETF Picks That Could Outperform as 2026 Unfolds

The Market Setup: Why Now Matters for Momentum Plays

Start 2026 positioned for what could be a significant year for momentum-driven strategies. While Wall Street grappled with AI valuation concerns and soft consumer spending through late 2025—U.S. retail sales climbed just 0.2% sequentially in September, falling short of the 0.4% forecast—the structural backdrop for growth remains intact.

The key insight: earnings aren’t following the pessimists’ script. Big Tech’s relentless capex investment cycle keeps pushing earnings higher. Wedbush’s Dan Ives captures the prevailing sentiment well—we’re in year three of an 8-10 year AI infrastructure buildout, not a bubble on the verge of collapse. For momentum ETF investors, this matters because it means the tailwinds haven’t reversed; they’ve just been questioned.

Fed Policy and Rate Expectations: The Hidden Catalyst

Don’t overlook what’s happening at the Federal Reserve. The central bank revised GDP growth projections upward to 2.3% for 2026 (from 1.8% in September) and projects just one rate cut next year, holding the Fed Funds rate steady at 3.4%. Here’s the intriguing part: President Trump’s influence on Fed chair selection—the current chair’s term ends in May—could accelerate rate cuts if the labor market cooperates and inflation continues easing.

PCE inflation sits at 2.5% (down from 2.6%), unemployment is pegged at 4.4% for 2026, and the conditions exist for a more accommodative policy environment than currently priced in. If we get a dovish Fed chair and labor data weakens further, momentum ETF investors could see multiple rate cuts reshape the investing landscape.

Why Earnings Growth Keeps the Momentum Alive

The number that matters most: S&P 500 earnings are forecast to grow 11.8% in 2026, following an 11% increase in 2025. Revenue growth is expected at 6.7% in 2026 versus 5.2% for 2025. These projections underpin Oppenheimer’s year-end S&P 500 target of 8,100—a level that would represent roughly 16% upside if achieved.

Deutsche Bank echoes the bullish bias, pointing to ongoing investment flows, persistent share buybacks, and resilient earnings strength as the foundation for “mid-teens returns” in 2026. Margin compression remains a watch point—profit margins are expected to narrow slightly to 0.63% in 2026 from 0.70% in 2025—but it’s not enough to derail the bull case.

The Momentum ETF Strategy for 2026

Against this backdrop, momentum ETF strategies deserve renewed attention. With trade tensions that roiled much of 2025 showing signs of easing, risk-on positioning could accelerate. Consider tracking:

iShares MSCI USA Momentum Factor ETF (MTUM) – The core momentum play. This fund captures the broad momentum factor within the U.S. large-cap space, giving you direct exposure to the performance trends that typically drive momentum investing.

Recent high-momentum performers warrant consideration:

VanEck Junior Gold Miners ETF (GDXJ) – Up 13.2% over the past month. Gold miners have benefited from both weak-dollar dynamics and safe-haven flows. This sector momentum could persist if rate cuts materialize faster than expected.

iShares Silver Trust (SLV) – Up 19.3% over the past month. Precious metals have captured significant momentum, reflecting both inflation hedging and industrial demand strength tied to AI infrastructure investment.

State Street SPDR S&P Bank ETF (KBE) – Up 8.3% over the past month. Financials have shown momentum as rate expectations stabilize and lending conditions remain favorable. This is momentum tied to economic resilience.

State Street SPDR S&P 400 Mid Cap Value ETF (MDYV) – Up 4.8% over the past month. Mid-cap value stocks often outperform when rate cuts loom and economic growth stays intact. This represents a different kind of momentum—sector and size rotation.

iShares Russell 2000 ETF (IWM) – Up 5.8% over the past month. Small caps display momentum on the assumption that lower rates and domestic economic strength favor smaller, domestically-focused businesses over mega-cap tech.

The Bottom Line for Momentum ETF Investors

The 2026 setup favors investors who understand that momentum doesn’t exist in a vacuum. It flows from earnings surprises, Fed policy shifts, and sector rotation. The five momentum ETFs highlighted above capture different angles of this play—from broad-based momentum factors to sector-specific and size-based momentum trades.

The consensus call for 16% S&P 500 returns, combined with Fed accommodation and earnings growth, suggests momentum strategies could find fertile ground in the year ahead. What matters now is positioning before the market fully prices in this scenario.