From "fear of missing out" to "fear of holding": How much longer will the momentum stampede last? This is the biggest uncertainty in the current market.
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Beneath the calm surface of global stock markets, a historic collapse of momentum strategies is accelerating. Goldman Sachs trader Benny Quek warns that positions in AI and technology sectors are far from cleared, and volatility will persist in the third quarter.
The momentum factor has declined for five consecutive weeks, leveraged ETFs have suffered a historic crash, and market sentiment has rapidly shifted from "fear of missing out" to "fear of holding." Meanwhile, the core contradiction in the AI narrative has shifted from capital expenditure to profit margins and returns, with credit spreads for hyperscale cloud vendors widening sharply, putting pressure on the market.
Multiple pressures are fermenting simultaneously—geopolitical conflicts, oil price fluctuations, interest rate trends, and the reemergence of tariff risks are all vying to dominate market pricing. The Goldman Sachs risk appetite indicator remains at a high level, while the implied correlation among S&P 500 constituents is extremely low, a combination that provides structural support for long index volatility positions.
Momentum collapse enters the fifth week, leveraged ETFs bear the brunt
The collapse of the momentum factor is currently the most prominent structural feature of the market.
According to Goldman Sachs trader Benny Quek in his latest "Weekend Thoughts" report, momentum strategy unwinding has continued for five weeks, accompanied by a historic crash in leveraged ETFs.
Take the South Korean market, for example: the size of leveraged ETFs has been halved from its $53 billion peak, and the proportion of leveraged exposure to market free float has dropped from 3.3% at its peak to 2.1%.
The daily rebalancing flows of Samsung and SK Hynix as a share of average daily trading volume over the past month have also sharply fallen from 40% and 26% to 15% and 14% respectively. KOSPI has closed down for five straight weeks, drawing an unsettling parallel with China's CSI1000 from 2014 to 2015.
The U.S. market is also under pressure. The long vs short momentum pair (High vs Low Momentum Pair) fell 8% in a single day last Friday. Though it gained 4% for the week, the intensity of the swings fully reveals the vulnerability of existing positions.
AI narrative shifts, credit spreads for hyperscale cloud vendors widen
The logic of AI trades is undergoing fundamental change.
Quek notes that market attention has shifted from headline capital expenditures of hyperscale cloud vendors to more intractable issues: profit margins, return on investment, and the ever-rising pace of debt issuance.
Goldman Sachs estimates that AI-related bond issuance so far this year has reached $489 billion, with 40% coming from hyperscale cloud vendors—1.5 times the forecast for all of 2025. Meanwhile, credit spreads for those cloud giants are widening sharply, making the cost pressure from debt financing unavoidable.
From a market cap perspective, the S&P 500 has grown by $31 trillion since December 2022, yet Goldman's estimate for AI's potential value under its base, optimistic, and blue-sky scenarios are $9 trillion, $8 trillion, and $28 trillion, respectively. This comparison suggests that the current market cap expansion has, to a significant extent, already priced in AI's potential upside.
Positions far from cleared; high volatility remains the main theme for Q3
Quek states clearly that he believes positions in AI, tech, and momentum strategies are far from being "cleaned out" as the market expects, and he remains highly vigilant of continued high volatility in Q3.
He prefers a "barbell" strategy in the current environment—allocating to both defensive assets and selected offensive positions to deal with uncertain and turbulent markets.
From a technical standpoint, while volatility at the individual stock and factor level has surged, implied correlation among S&P 500 constituents remains extremely low. Quek notes that this divergence offers additional structural rationale for going long index volatility—low correlation means index-level volatility is underestimated, and once correlation picks up, index swings will be magnified.
Goldman Sachs' risk appetite indicator remains high, suggesting that overall market sentiment has not yet fully reflected these risks, lending further support to a cautious outlook on volatility.
Rotation and divergence: Structural opportunities emerge in Asia
Despite overall pressure, signs of money rotation are already quite evident in Asian markets. Indonesia's JCI has bounced 16% from its lows, while India has logged the region's strongest monthly foreign inflows. Capital is shifting from high-momentum, high-valuation sectors toward more defensive and value-oriented assets.
From a sector view, rotation is even clearer. The software sector's performance relative to semiconductors has broken above its 50-day moving average, showing ongoing internal structural rebalancing.
Additionally, the gold market is flashing noteworthy signals: CFTC gold futures holdings are rising, which has historically led spot gold prices; meanwhile, China's gold imports in June jumped to a two-year high, suggesting that the potential support from safe-haven demand should not be ignored.
Quek also expects more headline-driven volatility as the U.S. midterm elections approach.
Historical data shows that U.S. stocks typically trade sideways before the midterms and tend to strengthen after elections. This pattern may provide a near-term anchor for the currently pressured market, but how much longer the momentum unwind will last remains the biggest market suspense before then.
Global stocks finished flat last week overall, but that figure masks intense internal turbulence. Markets previously ignored ongoing geopolitical conflict, oil and interest rate swings, but those three forces have now entered the limelight to compete for pricing dominance.
Meanwhile, tariff issues are heating up again, injecting new uncertainty into an already fragile market mood. Quek points out that this year’s volatility has already been extremely taxing for investors, and the market is in a complex phase marked by multiple, conflicting narratives and unclear directions.
Risk Warning and DisclaimerThe market carries risks; investments need to be made with caution. This article does not constitute personal investment advice, nor does it take into account individual users' specific investment objectives, financial situations or needs. Users should assess whether any opinions, views or conclusions in this article are suitable for their particular circumstances. Investment is at your own risk. ```