US Momentum Trade Hit by Largest Unwind Since 2001
N.R. Finch
The S&P 500 momentum index trailed the broader market by 7.9 percentage points over three weeks — the widest gap since March 2001 — yet money isn't leaving equities; it's rotating fast between sectors.
How bad is the momentum sell-off?
Goldman Sachs strategists wrote on July 13 that the momentum factor — a strategy that buys whatever has risen the most recently — saw its most violent sell-off since the early 2000s over the past three weeks.
As of July 7, the S&P 500 momentum index lagged the broad market by 7.9 percentage points, the widest gap since March 2001.
The Invesco S&P 500 Momentum ETF (SPMO) has fallen 7.1% in July so far, on track for its worst month since March 2025.
This means → the "buy what's been winning" playbook is being unwound at a pace not seen in over two decades.
Why hasn't the broader market cracked?
The S&P 500 is still up roughly 1% this month and 10.6% year-to-date, sitting just ~0.5% below its early-June record close.
Chris Galipeau, chief market strategist at Franklin Templeton, put it plainly: "This is rotation, not detonation."
In plain terms = money hasn't left the stock market — it has moved from one group of stocks to another. Goldman also noted that equity markets stayed relatively stable over the past month; the momentum unwind remains a factor-level event that has not spilled into the index.
Where is the money going?
Investors are pulling out of richly valued momentum favorites such as semiconductors.
Destination one: financials — the S&P 500 financials sector is up 5.3% in July, boosted by Wall Street banks beating estimates and strong results from BlackRock.
Destination two: mega-cap tech — the Roundhill Magnificent Seven ETF has rebounded 7.3% this month after dropping 9.1% in June.
This means → the market is not de-risking broadly; it is re-sorting which names deserve their valuations.
What comes next?
Goldman strategists flagged the next test: earnings season — whether the sector rotation gets fundamental backing will determine if this is a healthy reset or the prelude to a broader sell-off.
In plain terms = if financials and mega-cap tech deliver strong results, the rotation is validated; if earnings disappoint, money may have nowhere left to go, and volatility could finally spread to the index level.
Content is for reference only, not financial advice.