US Semiconductor Stocks Plunge 6% in a Single Day as Debate Over Momentum Trade Inflection Point Intensifies
Claire Weston
US semiconductor stocks fell 6% in a single session, reigniting the core debate: is the most crowded momentum trade starting to unwind? UBS and Goldman Sachs data point in opposite directions.
How crowded is this momentum trade, really?
UBS data show the MSCI Global Momentum Index has outperformed the broader MSCI Index by 11.5 percentage points over six months — a four-standard-deviation event. This means → statistically, a move this extreme shows up roughly once every 60 years.
UBS quant research identified seven prior episodes of significant momentum outperformance in 30 years. The current stretch is entering what they call the eighth.
Yet crowding gauges are not extreme: the momentum premium sits at the 20th-to-33rd historical percentile, well below past bubble peaks. In plain terms = the rally is sharp, but "everyone on the same side of the boat" hasn't reached its most dangerous historical level.
Is this rally backed by actual earnings?
Unlike most historical momentum surges driven by pure speculation, this one has an earnings foundation. UBS notes that recent momentum excess returns are primarily earnings-driven; valuations have actually been compressing since Q3 last year.
Market concentration is rising in tandem — HOLT data show the top ten companies by forecast profit growth now account for the majority of total expected economic-profit gains. This reflects capital concentrating on the handful of firms with the highest certainty.
Goldman Sachs data, however, show that some semiconductor stocks have rallied beyond the upward revisions to their earnings estimates. This means → earnings are providing support, but some names have already "spent" future good news.
What role is trend-following money playing?
The CTA strategy index — tracking a class of quantitative funds that automatically follow price trends — has risen roughly 14% since April 1, 2025. Trend-following inflows have amplified the momentum effect.
Goldman's High Beta Momentum Pair basket (long high-momentum, short low-momentum) has gone virtually nowhere over the past two months, trading sideways. In plain terms = the most aggressive momentum strategy has stopped making new money, but it isn't losing either.
Read together: trend capital is still flowing in, yet marginal returns are near zero. This reflects a market stuck in a standoff over whether to keep chasing.
Where is the real risk hiding?
History shows that the biggest danger in momentum trades is often not the drawdown itself but the violent snapback that follows — short sellers face buy-back pressure that routinely exceeds expectations when momentum reverses.
This means → if you are short semiconductor momentum names now, a reversal could trigger a short squeeze — forced buying to close positions — that hurts more than the initial drop.
That pattern has not yet appeared. Whether this single-day 6% semiconductor drop is normal volatility or the end-signal for the eighth momentum cycle depends on whether upcoming earnings data can keep justifying current valuations.
Content is for reference only, not financial advice.