Sales & Trading Commentary (Not a Product of Morgan Stanley Research) | For Institutional Use Only Momentum exhibited its own version of March Madness this past month. The Momentum L/S Pair (MSZZMOMO) fell an average of -4.5% on four separate occasions this month (citing 3/3, 3/5, 3/26 & 3/30) with the start of month demonstrating its own challenges (PnL-wise for HFs) off the back of geopolitical tensions. Even so, the start of March brought flows linked to selling high Momentum names and buying low Momentum names which attributed to 2-way factor risk with net-positioning in the factor in the 89th %-tile vs. past 12months. While month end brought more pressure to Momentum Long (linked to the AI Theme + others) as the long leg fell ~10% from 3/26 thru 3/30 amidst some de-grossing within the factor. As March ends, it is important to re-iterate that Momentum (on both the long and short side) is still very thematically linked. The second table below shows the high overlaps in popular themes in both MSQQUMOL and MSQQUMOS following the April 1st MOC rebalance. Weighting in the Momentum Long Leg continues to intertwine with the AI Theme (AI Beneficiaries), alongside Optical Networking names like (COHR +19%, GLW +47%, CIEN +56%) which have rallied significantly over the past 3M. Highly Trafficked retail names still tilt positive to Momentum, but a growing presence of Unprofitable Smid-Caps shown via (MSXXRTYU) across the nuclear complex in UUUU +21%, UEC +11% have gained steam over the past 3M despite geopolitics. On the flip side, Software (majority being SaaS names) encapsulates the 25% capped out Info Tech weighting in the short side of Momentum with weakness in ADBE -30%, CRM -29%, INTU -35% over the past 3M. Meanwhile the Financials sector, has become heavily tilted towards Momentum Laggards driven by weakness in Alternatives (MSXXALTS) around private credit fears. Looking over the past 12 months, this is the largest negative tilt to Momentum the Financials sector has experienced and since the start of 2026 the negative tilt %-wise has grown MoM. Positioning-wise, exposure to high momentum names still appear quite stretched (even with the recent supply induced over the past week) where HF net-exposures to High Momentum names came down to the 79th %-tile over the past 12M. * Trade Opportunity if looking to play High Momentum names lower can be expressed via Delta One or via Optionality with: MSQQUMOL 2m 90% 75% put spread costs 3.17% ..3.7x leverage (indic). Looking at the April 2026 Rebalance: Momentum's largest long tilts are now: Industrials, Materials, Energy & Health Care , while short Consumer Discretionary, Financials & Real Estate. * Health Care has flipped back net positive as last month's negative tilt came mostly from HMO weakness in January, meanwhile MSXXHMO price action in February was more subdued. * Industrials still tilt net-positive, capped out at 25% weighting within the long leg as Industrials Momentum via (MSZZINMO) climbed +5.6% MTD. * Consumer Discretionary is now the 2nd largest net-negative sector in the L/S pair around sharp moves within high beta discretionary names in apparel retail (BIRK, DECK, LULU) attributing to negative returns. * Financials have continued to move deeper into Momentum Laggard territory as the sector via MSXXFINL which has fallen -11.8% over the past 3months. [cid:image007.png@01DCC0F4.E27CDFA0] Source: MS Delta One [cid:image019.png@01DCC100.4294C8C0] Source: MS Delta One 12m Winners (MSQQUMOL) Materials continue to be a sector that gain traction within (MSQQUMOL). The sector has continued to become more tilted towards positive Momentum, with this month being the largest net-positive weighting skew in the L/S pair in over 1-year. The biggest catalyst stems from the behavior of equity-linked Gold names (NEM, CDE, RGLD) and even Copper (SCCO) and Silver (HL). Demand for infrastructure to support the growing AI theme (data + cooling systems). As noted earlier, the AI Theme continues to tilt positive Momentum despite some recent de-grossing in AI favorites & High Momentum names. Even so, one standout that we've noticed is the pick-up in Optical Networking (MSXXNTWK) & Semiconductor Equipment (MSXXSCAP) performance vs. Memory names (MSXXGMEM). As the Long Leg captures decent overlap in Networking and Semi-caps, both baskets have bested Memory by ~17.5% since March 18th. What's caused this deviation are names like MU and SNDK which experienced weakness around GOOGL's TurboQuant technology spurring a bear-case for Memory, where optimism spurs around the optical market. MSR forecasting in their '28 base case for it to reach ~$65bn+ off the back of increasing speed / investment in AI data centers. [cid:image009.png@01DCC0F4.E27CDFA0][cid:image010.png@01DCC0F4.E27CDFA0] Source: MS Delta One 10-session breakout between MSXXSCAP & MSXXNTWK vs. MSXXGMEM [cid:image001.png@01DCC117.CBCF20B0] Source: MS TIS/Delta One [cid:image002.png@01DCC11F.7A7E5980] 12m Laggards (MSQQUMOS) Financials is now the 2nd largest weighting sector-wise within the Momentum Laggards leg, around private credit risk concerns. Looking under the hood, our Alternatives basket (MSXXALTS) has fallen -27% over the past 3M. Weakness has been exhibited across ARES (-2.8%), HLNE (-4.6%) and even across Insurance Brokers like AJG (-5.3%) over the past 1m. Even so, private credit faces real but contained risks (with pressures concentrated to software exposure and refinancing risk), hence why we've also seen the reaction in our MSZZSFSE pair which is down -32.8% YTD with Application Software being a heavy tilt in short momentum. [cid:image011.png@01DCC0F4.E27CDFA0][cid:image012.png@01DCC0F4.E27CDFA0] Source: MS Delta One [cid:image003.png@01DCC11F.7A7E5980] POSITIONING: HF net exposure to the Momentum factor remains elevated though driven primarily via the long leg despite the active selling seen through March. Our PB Content team has also eluded there was a larger shift yesterday in terms of flow was at the factor level, with HFs ending as large net sellers of the Momentum factor / net buyers of Quality. [cid:image004.png@01DCC11F.7A7E5980][cid:image005.png@01DCC11F.7A7E5980][cid:image006.png@01DCC11F.7A7E5980] MSZZMOMO L/S 12m Lookback: [cid:image015.png@01DCC0F6.BEC7DF90] Source: MS Delta One Kaitlyn J. Shanahan | Vice President Morgan Stanley | Institutional Equity Division 1585 Broadway, 2nd Floor | New York, NY 10036 Phone: +1 212 761-4335 Kaitlyn.shanahan@morganstanley.com<mailto:Kaitlyn.shanahan@morganstanley.com> ________________________________ NOTICE: Morgan Stanley is not acting as a municipal advisor and the opinions or views contained herein are not intended to be, and do not constitute, advice within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. If you have received this communication in error, please destroy all electronic and paper copies and notify the sender immediately. Mistransmission is not intended to waive confidentiality or privilege. 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