U.S. Momentum Stocks Suffer Fastest Collapse in History; Technical Rebound May Be a Trap
Taylor Wilson
Morgan Stanley's momentum index fell 17.4% in four days, surpassing the dot-com bust, the pandemic crash, and the 2022 bear market; BTIG warns any technical bounce is likely just a pause before the next leg down.
How bad is this momentum crash?
Morgan Stanley's sector-neutral momentum index — a gauge tracking the best-performing stocks — dropped 17.4% in four trading days, faster than the dot-com bust of 2000, the Covid crash, or the 2022 bear market.
The Nasdaq Composite fell for six straight sessions, now nearly 10% below its June 2 closing high — the longest losing streak since April 2024.
The Philadelphia Semiconductor Index plunged 5.3% in a single day, its worst since early July — yet it is still up roughly 45% year-to-date. This means → the prior rally was so steep that even a historic sell-off has barely dented cumulative gains.
Why are long-bond yields making it worse?
The 30-year US Treasury yield hit 5.246%, the highest since 2007.
This means → tech stocks face a double squeeze: higher yields raise the discount rate applied to future earnings, compressing valuations; at the same time, the cost of financing massive AI infrastructure buildouts climbs.
In plain terms = borrowing is more expensive and future profits are worth less today — both forces land squarely on stocks whose prices depend on "the story of tomorrow."
Can you buy the technical bounce?
BTIG chief market technician Jonathan Krinsky says momentum stocks "should get some relief," but warns against chasing the rally.
His precedent: after the 2000 dot-com bust, the Philadelphia Semiconductor Index crashed 35% in one month, then bounced 37% — before falling sharply again. This means → a bounce alone does not confirm a bottom; historically, "bounce then drop" is the norm.
Goldman Sachs' high-beta momentum pairs index is now 23% below its 200-day moving average; in mid-June it sat 40% above it. Even a 20% bounce would only return the SOX to its 50-day moving average, where Krinsky expects "renewed pressure."
Is the equal-weight rally trustworthy?
While the Nasdaq 100 fell 11% and the semiconductor ETF dropped 29%, the S&P 500 equal-weight ETF (RSP) hit a record high — up about 12% year-to-date versus roughly 7% for the cap-weighted SPY.
Krinsky argues this strength partly reflects hedge unwinds as money exits semiconductor and AI names, not independent fundamental demand.
In plain terms = the equal-weight index looks strong, but it may just be a temporary dock for capital fleeing tech — once panic spreads, the dock floods too. He recommends "shorting equal-weight" as a hedge.
What is the key variable for what comes next?
Krinsky warns: if no bounce materializes, the market could see a repeat of August 2024's "correlation-one sell-off" — every asset class falling in unison, with nowhere to hide.
Whether the 30-year Treasury yield stabilizes at current levels is the single most important variable for any tech rebound.
This means → the question is not whether tech has "fallen enough," but whether the bond market is willing to ease up; until rates retreat, every bounce is a potential trap.
Content is for reference only, not financial advice.