Goldman Sachs' Early Warning Confirmed: Momentum Stocks Fall 24% in 10 Days, May Decline 50% Further

According to Goldman Sachs, the high-beta momentum strategy basket fell 18% over two trading days in early July after the firm's "summer slowdown" warning was issued. The momentum factor has declined 24% from its peak—double the historical average correction of 12%—in just 10 days, far faster than the typical 24-day recovery period.

Goldman's trading desk has captured initial signs of a buy-on-dips opportunity, noting that similar corrections historically rebounded. However, the firm warned that if deleveraging accelerates, momentum factors could face a maximum potential decline of 50%. The bank attributed the sharp selloff to seasonal factors including reduced liquidity and quarter-end positioning adjustments, while noting that momentum strategies remain crowded with capital. Global synchronized selling also emerged, as South Korean stock markets recorded record foreign investor net outflows.