S&P 500 Momentum Index Approaches Its Worst Quarterly Performance in 25 Years

Huo Xing Finance reports that on August 31, as AI-related stocks experienced sharp volatility and short-covering intensified, Wall Street’s long-standing “buy strong, sell weak” momentum strategy is undergoing a dramatic reversal. Data shows that since July 1, the S&P 500 Momentum Index has declined more than 9%, while the S&P 500 Index has risen approximately 2.8% over the same period, putting the momentum index on track for its worst quarterly performance in 25 years. In the second quarter of this year, the S&P 500 Momentum Index surged 44%, marking its best quarterly performance on record, with a cumulative gain of 133% over the past five years, making it one of the most crowded trades among institutional investors. However, since the start of the second half of the year, some previously shorted stocks have suddenly rebounded, triggering large-scale unwinding and short-covering by quantitative funds. Bank of America data shows that momentum trading performance in July was the second-worst in nearly 40 years, surpassed only by the 2009 financial crisis. Goldman Sachs data indicates that August 19 was one of the most severe trading days in nearly two years for systematic long/short funds, with approximately half of the losses stemming from the failure of momentum strategies. Meanwhile, net short positions among speculators in Nasdaq-100 futures have risen to near a 20-year high. Market participants warn that although the broader U.S. stock market continues to rise, high valuations in AI, surging capital expenditures by tech giants, and overcrowded momentum trades are increasing the risk of a sudden market reversal.