Momentum stocks just took a hit. History says buyers often get paid
AI-linked winners have stumbled in July, but Dow Jones Market Data shows past momentum corrections often produced strong rebounds.
By Frankie Delgado · News Reporter
3 min read
The market’s favorite rocket trade has come back to Earth in July, with momentum stocks tied to semiconductors and artificial-intelligence infrastructure taking a sharp hit after a blistering spring run.
MarketWatch reported that the S&P 500 Momentum Index dropped into correction territory late last week, citing Dow Jones Market Data. By Monday’s close, the index was down 10.6% from its record finish on June 22.
The slide followed a powerful second quarter. According to Dow Jones Market Data, the S&P 500 Momentum Index climbed more than 44% during that period, its best quarterly performance on record.
Travis Prentice, chief investment officer and portfolio manager at the Informed Momentum Company, told MarketWatch that investors seeking longer-term exposure may find the pullback attractive, while warning that the near-term ride could remain rough.
Past pullbacks brought strong rebounds
Dow Jones Market Data examined prior corrections in the Invesco S&P 500 Momentum ETF, known by the ticker SPMO. The fund is designed to follow the S&P 500 Momentum Index, according to MarketWatch.
In that analysis, a correction meant a decline of at least 10% from a recent high. After previous drops of that size, the ETF rose 12.4% on average over the next three months, according to Dow Jones Market Data and FactSet.
The one-year numbers were stronger. Average returns 12 months after those corrections topped 24%, with positive outcomes roughly 90% of the time, the data showed.
The figures do not rule out more pain first. Dow Jones Market Data found that the ETF’s average maximum decline during past corrections was about 15%, suggesting the current selloff may not have fully played out.
Other versions of the momentum trade have been hit harder. MarketWatch reported that a high-beta momentum basket built by Goldman Sachs, which includes both long and short positions, has dropped more than 30% from its peak.
Rotation takes over
Bespoke Investment Group analysts told MarketWatch that the recent action shows a sharp turn away from the year’s hottest winners. Among 47 Russell 1000 stocks that had gained at least 100% in the first half of 2026, the average decline since the start of July was 21.6%.
The laggards have had their own comeback. Bespoke said 17 Russell 1000 stocks that were down at least 50% in the first half had risen 10.6% since July began.
That shift has moved money away from some semiconductor and AI-related names and toward areas including energy, retail and banks, according to MarketWatch.
Melissa Brown, global head of investment-decision research at SimCorp, told MarketWatch that momentum portfolios can change as new winners emerge. She said drawdowns in momentum strategies are often large but usually do not persist for long because the stocks qualifying as momentum names eventually rotate.
The timing of that reset depends on the fund. MarketWatch reported that the Invesco S&P 500 Momentum ETF rebalances twice a year, while the iShares Edge MSCI USA Momentum Factor ETF, or MTUM, rebalances quarterly, according to prospectus documents.
This story draws on original reporting from MarketWatch.