What goes up | U.S. equity market commentary 4Q 2025
Oakmark is the mutual fund family launched in 1991 by Harris Associates, the Chicago deep-value firm founded in 1976 (about $105bn AUM). Bill Nygren runs the flagship Oakmark Fund and David Herro the Oakmark International Fund, buying businesses at large discounts to intrinsic value and holding them like owners — publishing quarterly fund commentaries, market commentaries and insight articles.
In plain words
This report opens with Newton's quote about things going up eventually coming down. It shows that buying the biggest winners (momentum strategy) has doubled the market's return over the past two years, a situation not seen since the late 1990s dot-com bubble. History says such trends reverse. For ordinary investors, chasing hot stocks is risky now. Instead, focus on undervalued companies. Worth reading because it uses hard data to warn against hype and encourages a calm, value-oriented approach.
Oakmark 2025 Q4 U.S. Equity Market Commentary The report notes that although active management funds—particularly those focused on business value—achieved double-digit, tax-efficient returns in 2025 and reached new all-time highs, most still underperformed the S&P 500. The core argument is that mome
Theme and Background
This chapter opens with Newton’s famous quote, “What goes up must come down,” and examines the extreme performance of momentum strategies over the past two years and their impact on value-oriented active management funds. The report notes that although the Oakmark fund achieved double-digit returns in 2025 and hit an all-time high, most active management funds still underperformed the S&P 500, particularly those focused on business value.
Core Thesis
The author’s core investment argument is that the current concentration and excess returns of momentum strategies are approaching levels seen during the 1998–1999 internet bubble, and history suggests such trends are unsustainable. The counterintuitive insight is that over the past two years, the simple strategy of “buying the stocks with the largest gains” has delivered returns nearly double those of the S&P 500, while traditional rebalancing advice has caused value investors to miss the biggest gains.
Key Arguments and Data
In 2025, the top momentum quintile of stocks achieved a cumulative return of 36%, double the S&P 500’s 18% return
- In 2025, simply buying the top 20% of mid- and large-cap stocks by past nine-month gains and rebalancing quarterly yielded returns nearly double those of the S&P 500.
- Over the two-year period 2024–2025, the momentum strategy accumulated a 91% return versus 47% for the S&P 500, generating an excess return of 43%, the second strongest since 1998.
- During the 1998–1999 internet bubble, momentum excess returns reached 75% (130% vs. 56%); the current 43% excess is second only to that period.
- Including 2023, the three-year cumulative momentum performance is now very close to that of the internet bubble era.
Strongest Two-Year Momentum Performance Periods (Non-Annualized)
From 2024 to 2025, the top momentum quintile grew 91%, significantly outperforming the S&P 500’s 47%
| Period | Top 20% Momentum | S&P 500 | Momentum Excess |
|---|---|---|---|
| 1998–1999 | 130% | 56% | 75% |
| 2024–2025 | 91% | 47% | 43% |
| 2023–2024 | 92% | 58% | 35% |
| 2001–2002 | -11% | -31% | 20% |
| 2006–2007 | 33% | 22% | 11% |
The 1998–1999 momentum strategy return of 130% ranks first, while the 2024–2025 return of 91% ranks second, with an excess return of 43%
Companies/Assets Involved
This chapter does not mention specific companies; it primarily discusses the relative performance of momentum strategies versus the S&P 500 index, with the Oakmark fund serving as a representative value-oriented manager.
Investment Implications
For investors, this means: the current extreme concentration and excess returns of momentum strategies are approaching historical bubble levels, and continuing to chase the stocks with the largest past gains carries very high risk. History shows that after the internet bubble, momentum excess returns quickly evaporated, and non-tech stocks staged a significant catch-up rally. Investors should consider withdrawing from crowded momentum trades, returning to fundamental valuations, using high-yield stocks to generate profits, and reallocating to undervalued assets.