The momentum trade experienced a severe reversal starting in July 2026. This strategy involves purchasing stocks with existing upward trends. Investors previously used this approach to target AI-related companies including Nvidia, Micron, and AMD.
July 2026 marked the second-worst month for the momentum trade in nearly 40 years. The S&P 500 Momentum Index has dropped more than 9% since July 1. In contrast, the broader S&P 500 index gained 2.8% during this same period.
The index is now on pace for its worst quarterly underperformance in 25 years. This sudden shift has inflicted significant financial losses on heavily invested hedge funds.