The U.S. stock market’s dominant momentum trade, fueled by a surge in semiconductor stocks, is potentially heading for a dramatic unwind this July. A prominent strategist warns of a “violent unwind” as historical patterns suggest July is often a difficult month for momentum strategies, and this year’s concentrated rally may exacerbate the risk.
This potential rotation could lead to significant price reversals beneath the surface of major indexes like the S&P 500 and Nasdaq Composite, which recently posted their largest quarterly gain in six years.
Why the Stock Market’s Red-Hot Momentum Trade Might Be Headed for a Violent Unwind This Month
Momentum trades tend to struggle in July — but this year may be particularly volatile, says one strategist. The rumblings have already started.
By MarketWatch
July 5, 2026, 9:00 a.m. ET
The U.S. stock market may see explosive moves beneath the S&P 500 index’s surface in July.
Photo: MarketWatch/iStockphoto
U.S. stocks are set up for potentially dramatic rotations beneath the S&P 500 index’s surface, with rumblings already underway following a stratospheric rise in semiconductors shares.
An astounding rally in momentum stocks, captured by the performance of the Invesco S&P 500 Momentum ETF (SPMO), just helped drive major indexes like the S&P 500 (SPX) and Nasdaq Composite (COMP) to their biggest quarterly gain in six years, according to Dow Jones Market Data.
Momentum strategies, which bet on assets that have shown strong recent performance to continue their upward trend, have been a dominant force in the market. However, historical data suggests that July can be a challenging month for these trades, often leading to significant price reversals.
One strategist notes that this year's momentum surge, particularly driven by AI-related semiconductor stocks, might be even more susceptible to a sharp unwind. The concentration of gains in a few specific sectors could lead to a more volatile deleveraging process if investor sentiment shifts.
The article suggests that the market has already begun to show signs of this potential shift, with increased choppiness and rotation observed in recent trading sessions. Investors are advised to be cautious as the market navigates this potentially turbulent period.
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