Evolution of Industry Momentum Factors Following the 2025 U.S. Midterm Elections: Analysis of Structural Differentiation and Policy Sensitivity

Abstract

Even though the United States election finished in 2024, the first half of 2025 is critical for the incoming administration’s policies to transition from anticipation to action. In light of this, this essay predicts that during the first half of 2025, high-momentum sectors will exhibit substantial structural divergence. This disparity reflects the market’s perceptions about different industries’ ability to respond to policy changes. This article’s key statistic is a 9-day momentum factor, which captures short-term trend performance across sectors. With statistically significant t-test results, it explores the sectors with the greatest difference in policy events and creates discrete event analysis windows based on policy types. Finally, the findings reveal that policy events exacerbate the disparities in momentum between industries. Furthermore, the disparity is systematic, involving both the nature of the industry and the policy’s content. Building on these findings, it discusses five critical policies and the underlying variables that contributed to this outcome. It concludes that, while policy serves as an external catalyst for divergence, the primary cause of this divergence is changes in industry sensitivity.