US Stock Market Momentum Trading Faces "Crowded Bite Back": S&P 500 Momentum Index May See Worst Quarter in 25 Years

BlockBeats News, August 31st, as the AI concept stocks experienced violent fluctuations and short covering intensified, Wall Street's long-standing "buy high, sell low" momentum strategy is now facing a sharp reversal. Data shows that since July 1st, the S&P 500 Momentum Index has dropped by over 9%, while during the same period, the S&P 500 Index has risen by about 2.8%. The index is now heading towards its most severe quarterly performance in 25 years.

In the second quarter of this year, the S&P 500 Momentum Index surged by 44%, achieving its best quarterly performance in history. Over the past 5 years, it has accumulated a 133% gain and had become one of the most crowded trading strategies among institutions. However, in the second half of the year, some previously shorted stocks suddenly rebounded, triggering large-scale liquidation by quant funds and short covering.

According to Bank of America data, July of this year saw the second-worst performance of momentum trading in nearly 40 years, second only to the 2009 financial crisis. Goldman Sachs data shows that August 19th became one of the most brutal trading days for systematic long-short funds in almost two years, with about half of the losses coming from the failure of momentum strategies.

At the same time, speculative net short positions of Nasdaq 100 futures traders have risen to nearly a 20-year high. Market participants warn that despite the overall rise in the U.S. stock market, the overvaluation of AI, the surge in tech giant capital expenditures, and the overcrowding of momentum trading are increasing the risk of sudden market reversals.