BofA Trading Desk: Momentum Stock Pullback Nearing End, Historical Average Implies 5% Rebound
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Bank of America's equity trading desk is telling clients to buy U.S. momentum stocks — the basket has fallen over 10% from its June 25 peak, and historically a drawdown of this size is followed by an average 5% rebound within a month, with August seasonality adding a tailwind.
How far have momentum stocks fallen, and why does BofA think it's enough?
BofA's U.S. momentum basket dropped more than 10% from its June 25 high through last weekend, putting it on track for its second-worst July in a decade.
This means → profit-taking has already pushed prices into the zone that historically marks "enough of a pullback" — and that is exactly BofA's basis for calling the dip near-done.
In plain terms = momentum stocks — the hottest runners — have sold off hard enough to land in the range where past selloffs usually stopped.
What does the historical record say?
BofA's data show that whenever the basket has pulled back by a comparable magnitude, it has rebounded roughly 5% over the following month on average.
Seasonality backs the call too: over the past decade, August has been the basket's best-performing month.
The desk also notes that pullbacks in the past three quarters have typically bottomed in late July, with recoveries coinciding with the peak of earnings season.
How does BofA characterize this selloff?
The trading desk stated explicitly: the weight of evidence favors a continuation-style profit-taking, not a structural shift.
In plain terms = they see this as traders cashing in after a strong run, not as a trend reversal — once the selling exhausts itself, the uptrend resumes.
This reflects BofA's core read on the pullback: after a sharp drop, the setup is asymmetric — downside from here is smaller than the potential bounce.
What's in the basket, and how does BofA suggest playing it?
Current holdings include Sandisk, Micron Technology, Danaher, Coinbase Global, and AMD, among others.
BofA recommends entering via swaps or August call options on the U.S. high-momentum index or the U.S. tech-media-telecom high-momentum index.
This means → BofA prefers derivatives over outright stock purchases to bet on the rebound — a way to gain the same exposure with less upfront capital.
Is BofA alone in this view?
No. UBS's trading desk said earlier this week that the momentum slide is likely nearing its end as well.
UBS frames it slightly differently: the pullback is a chance for investors to rebuild positions in AI and semiconductors.
Two major bank desks issuing similar calls at the same time — this signals that a sell-side consensus around "momentum stocks bottoming short-term" is taking shape.
Content is for reference only, not financial advice.