Welcome to thoughts on the market. I'm Mike Wilson, Chief Investment Officer and Chief

U.S. Equity Strategist for Morgan Stanley. A lot with my colleagues bringing a variety

of perspectives, I'll be talking about the latest trends in the financial marketplace.

It's Monday, December 14th at 11.30 a.m. in New York, so let's get after it.

As we close out 2020, it may be helpful to analyze this year's market action as a means of determining what happens next year.

After all, over the past few decades, the most popular investment strategy has become price momentum.

Part of this is due to the way the asset management business is evaluated.

If you don't perform, you lose assets.

With so much competition the pressure to perform every month has never been greater.

The days of going against the big trends to catch a new one or a relic of the past as doing

so is just too dangerous for most fund managers. Even on the sell side where the

cost of being wrong is significantly lower, we see very few strategies willing

to go against the grain.

Meanwhile another key development in the asset management business has been the advent of

systematic and passive strategies.

Furthermore, many of these strategies have adopted price momentum as a key input

while attracting enormous sums of money.

Such flows have made such strategy successful almost in a self-perpetuating manner.

These observations make price momentum a non-mean reverting factor over time. This is a differentiated feature relative to

other factors like size, quality, growth, and value. Instead, these other factors tend to move

in and out of favor, which is simply saying they move into and out of the price

momentum bucket. In other words market leadership changes periodically when there

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