S&P 500 Momentum Index Falls Over 9%, Worst Quarterly Performance in 25 Years

On August 31, Wall Street's momentum trading strategy faced a reversal, with the S&P 500 Momentum Index dropping over 9% since July 1, while the S&P 500 Index rose about 2.8% during the same period, heading towards 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 in history, with a cumulative increase of 133% over the past five years. As the second half of the year began, some heavily shorted stocks rebounded, leading to large-scale liquidations and short covering by quantitative funds. According to Bank of America, the momentum trading performance in July was the second worst in nearly 40 years, only behind the 2009 financial crisis. Data from Goldman Sachs indicated that August 19 became one of the most brutal trading days for systematic long-short funds in nearly two years, with about half of the losses stemming from the failure of momentum strategies. Meanwhile, net short positions for Nasdaq 100 futures have risen to their highest level in nearly 20 years. Market participants warn that despite the overall rise in U.S. stocks, the high valuations of AI, soaring capital expenditures by tech giants, and crowded momentum trading pose a higher risk of sudden reversals in the market.

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