“Excess” money and momentum investing

Excess global money conditions can determine when momentum works and when investors should reverse the trade.

• The authors measure global excess money as the difference between the six-month rates of change in real narrow money and industrial output.
• This indicator turned negative in April 2026, with the signal available by mid-June after reporting lags.
• The MSCI World momentum index reached an 18.1% relative gain versus MSCI World on 22 June, then swung to a 5.6% relative loss.
• Since June, L2 industry-group price changes were negatively correlated with performance over the previous three years, showing a reversal in the market's former preferred themes.
• A strategy that bought the top quartile and shorted the bottom quartile by three-year performance had outperformed since 1998, while reversing those positions when excess money turned negative produced stronger and more consistent results.

Takeaway: Momentum has delivered historically partly during favourable excess-money conditions, so adding the monetary indicator may improve risk-adjusted equity returns.