Why Momentum Investing Is Failing as Semiconductor Stocks Reverse

Momentum investing, a strategy of buying already-rising stocks, is collapsing as the S&P 500 Momentum Index fell 9% in two months, significantly underperforming the broader market's 3% gain during the third quarter. The reversal is driven by a sharp pullback in semiconductor stocks, which dominated the index's top performers in the first half but now rank among the worst. A surge in biotech stocks, led by Moderna's 177% jump on August 19, and the impact of leverage, exemplified by the collapse of hedge fund Situational Awareness, have accelerated the shift. While the strategy may recover, as seen after the DeepSeek shock, the concentration in winning stocks has exposed vulnerabilities, with funds rotating from AI favorites into previously lagging sectors.