US stock momentum trading faces 'collective backlash': S&P 500 Momentum Index set to notch its worst quarterly performance in 25 years.

Amid sharp swings in AI-related stocks and intensifying short covering, Wall Street’s long-popular "buy strong, sell weak" momentum strategy is facing a sharp reversal. Data shows that since July 1, the S&P 500 Momentum Index has fallen more than 9%, while the S&P 500 Index has risen about 2.8% over the same period, pushing the momentum index toward 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, and was once one of the most crowded trading strategies among institutional investors. But entering the second half of the year, some stocks that had been heavily shorted suddenly rebounded, triggering large-scale liquidation by quantitative funds and short covering. Data from Bank of America shows that momentum trading in July this year posted the second-worst performance in nearly 40 years, second only to the 2009 financial crisis period. Goldman Sachs data shows that August 19 was one of the worst trading days for systematic long-short funds in nearly two years, with about half of losses stemming from the failure of momentum strategies. Meanwhile, net short positions held by Nasdaq 100 futures speculators have risen to near 20-year highs. Market analysts warn that while the broader U.S. stock market is still rising, AI overvaluation, surging capital expenditures by tech giants, and crowded momentum trades are exposing the market to a higher risk of sudden reversals.