So far, the selloff hasn't done much to dent the S&P 500, as other stocks and sectors have picked up the slack
A big momentum unwind has rattled U.S. investors this month.
Right on schedule, the red-hot U.S. momentum trade has seen a punishing unwind over the past few weeks, testing the strength of the stock market's leading names, while sending money flowing into sectors that had been left behind by investors earlier in the year.
In the U.S., the momentum trade had really started to rip around the beginning of the second quarter, as markets recovered from a selloff that was sparked by the war in Iran. But historical data shows that July has recently tended to be a difficult month for momentum stocks - and this year is shaping up to be another example.
The impact on the broader market has been limited so far. As popular semiconductor names came under pressure, money flowed elsewhere, helping to keep a floor under the S&P 500 SPX. As of Wednesday's close, the index was roughly 0.5% shy of its record closing high from early June, according to Dow Jones Market Data.
Recently, indexes that track the momentum factor delivered their biggest three-week drop relative to the broader S&P 500 since the early 2000s, according to strategists at Goldman Sachs in a research note dated July 13.
"Over the past three weeks, market leadership has been tested, with the momentum factor delivering the sharpest selloff since the early 2000s," the Goldman Sachs strategists said in the portfolio-strategy research note, citing selloffs from three-week highs for S&P 500 momentum stocks versus the performance of the broader market.
Based on the percentage change from its rolling 15-day highs, the S&P 500 momentum index had lagged the S&P 500 by nearly 8 percentage points as of July 7 - the biggest three-week gap since March 2001, according to Dow Jones Market Data. Although they have seen a bit of a comeback since, momentum names have largely remained under pressure. The S&P 500 momentum index fell on Wednesday, even as the broader index finished higher. The momentum index was on track for its third weekly decline in the past four weeks, FactSet data showed.
But the unwind hasn't had much of an impact at the index level so far, as Goldman Sachs noted that the equity market has held relatively steady over the past month or so. While hot areas of the market are cooling, other segments of the market are rallying.
July has been ugly for the Invesco S&P 500 Momentum ETF SPMO, which tracks the performance of stocks in the U.S. large-cap equities index with high momentum scores. The ETF has fallen 7.1% this month through Wednesday, putting it on track for its worst monthly performance since a 7.3% drop in March 2025, FactSet data showed.
"This is rotation, not detonation" in the market as the broader S&P 500 remains near its all-time high, said Chris Galipeau, head market strategist at Franklin Templeton Institute, in an interview. Investors are moving out of frothy areas of the market, like semiconductor stocks, and rotating into other areas, like financials XX:SP500.40 or back into Big Tech, he said.
The S&P 500, the widely followed index of U.S. large-cap stocks, has risen 1% so far this month, bringing its year-to-date advance to 10.6%, according to FactSet data through Wednesday. The index's financial sector has rallied 5.3% so far this month, with Galipeau saying its performance has benefited in part from blowout earnings from major Wall Street banks on Tuesday as well as strong numbers from giant asset manager BlackRock on Wednesday.
Members of the "Magnificent Seven" cohort of elite tech stocks have also bounced back. Those names largely struggled last month as semiconductors shot higher during the second quarter.
The Roundhill Magnificent Seven ETF MAGS, which holds shares of Nvidia (NVDA), Apple $(AAPL)$, Google parent Alphabet $(GOOG)$ $(GOOGL)$, Microsoft $(MSFT)$, Amazon.com (AMZN) and Facebook parent Meta Platforms (META), has jumped 7.3% this month through Wednesday, rebounding from a steep 9.1% drop in June, according to FactSet data.
Semiconductor stocks have been a big engine of the momentum trade this year, but in July they've struggled, with the PHLX Semiconductor Index SOX tumbling 13% this month through Wednesday. Still, the Invesco PHLX Semiconductor ETF SOXQ remains up a massive 75% this year even after that slide, according to FactSet data.
In addition to gains for the S&P 500, the Dow Jones Industrial Average DJIA and Nasdaq Composite COMP also finished higher on Wednesday after a choppy session.
"You have this pocket of semi froth that's getting rinsed out," Galipeau said. "The market is buoyant nonetheless because earnings have been phenomenal, really across the board."
-Christine Idzelis
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(END) Dow Jones Newswires
July 15, 2026 18:10 ET (22:10 GMT)
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