Is the fastest and largest tech stock sell-off in history nearing its end? Goldman Sachs reflects on the market's "brutal rotation."

```

Tech momentum trading is undergoing the most dramatic collapse in history. In just 17 trading days, the US equity tech momentum factor (TMT MoMo) has dropped 40% from its peak, setting a record for the fastest and deepest drawdown ever, with the impact spreading across semiconductors, hedge funds, and credit markets.

Goldman Sachs partner and EMEA head of hedge fund coverage Mark Wilson gave a systematic review of this "brutal rotation" this week, pointing out that the current sell-off is historically unprecedented in both speed and depth, but largely stems from non-fundamental factors such as crowded positioning and concentrated leverage, rather than material deterioration in the economy or corporate earnings. He stated, the unwind of the momentum factor is "nearly complete," but there is a lack of a catalyst for an immediate reversal in the short term.

Notably, this breakdown in momentum comes amid broadly solid macroeconomic and corporate fundamentals—US banks report a 17% year-on-year increase in corporate loans, TSMC raised its 2026 revenue growth guidance to over 40%, and inflation data is mildly below expectations. This divergence between fundamentals and market price action is at the core of current market tensions.

Tech momentum factor faces the sharpest sell-off ever, drawdown speed and depth surpass historical median

According to Morgan Stanley Quantitative & Derivatives Strategy (MS QDS) data, this momentum factor drawdown has lasted 17 trading days, with a peak-to-trough drop of 28%. By comparison, since 1999, the historical median drawdown for the momentum factor is 22% over an average of 33 trading days.

This means the current decline in both speed and depth has exceeded the historical median, marking the most severe since the 29% drawdown from December 2022 to February 2023.

The situation in the tech sector is even more extreme. The TMT momentum factor (TMT MoMo) has dropped 40% from its peak; according to MS QDS, this is the fastest and deepest sell-off of the tech momentum factor in history.

Across various segments, the Korea Composite Stock Price Index (Kospi) is down 27% from its peak, US AI tech beneficiary stocks are down 25%, global memory chip stocks are down 36%, and European semiconductors are down 23%. Of these, memory chip stocks account for about two-thirds of the overall decline, and the broader AI beneficiaries are down about 24% from their highs.

Low surface volatility masks intense internal turmoil, market risk structure is unraveling

Price declines are only the surface of this turmoil; changes in the market's internal risk structure are equally noteworthy.

According to Goldman Sachs volatility trading desk data, Goldman's high-beta momentum basket (GSPRHIMO) currently has volatility about 10 times that of the S&P 500 index. Over the past 20 years, such a disparity in volatility has only been seen during the shock period of the pandemic in November 2020.

Meanwhile, the gap between single-stock volatility and index volatility has widened to a historical extreme. Goldman Sachs data shows the S&P 500 components’ 3-month implied average correlation fell this week to 0.14, a historic low, keeping S&P 500 index volatility subdued while average implied volatility for individual stocks hit 40%, 2.8 times that of index implied volatility—also a record high.

Positions remain crowded, risk not fully cleared

Although the momentum factor has recently suffered a historic drawdown, hedge funds’ net exposure remains high from a long-term perspective. JPMorgan data shows that the current combination of positioning and drawdown makes the momentum factor still one of the core risks in the market warranting caution.

Meanwhile, Goldman’s high-beta momentum factor is down 33% from its June peak, and its YTD gain has plunged from 60% to just 12%, drawing attention from Mark Wilson.

He cites the deleveraging seen in the Korean market as evidence: according to reports, this week about 1 out of every 30 adults in Korea had a margin account forcibly liquidated, indicating that the deleveraging process is well underway.

Fundamentals intact, risk lies in positioning and structure

The unique feature of the current momentum breakdown is that it came amid generally positive corporate and macro fundamentals.

Mark Wilson points out that US banks’ earnings this week offered an "unequivocally positive take" on the economy: Corporate loans up 17% YoY to a record, spanning all sectors; US consumer spending growing at a mid-single-digit rate, credit card spending up 6%; investment banking related business lines collectively up over 40%; large banks' tangible return on equity reached 19%, a post-crisis high.

On the tech capex front, TSMC raised its 2026 revenue growth guidance to over 40% (off a base of more than $150 billion), while ASML’s earnings sparked expectations for a 15%-30% EPS upgrade over the next one to three years.

However, both companies' share prices fell after earnings, showing a typical "sell the news" response. In contrast, IBM saw its shares post their biggest one-day drop in over 20 years due to large contract delays and underwhelming consulting results.

Mark Wilson emphasizes that this sell-off "lacks clear fundamental signals," reflecting instead structural factors such as positioning, leverage, crowding, and concentration.

Rotation near end, but reversal catalyst yet to appear

Mark Wilson says he tends to believe the unwind of the momentum factor is nearing its end, but at the same time notes there is a lack of a summer catalyst for a quick market reversal in the short term.

He also points out that as efficiency and business execution improve, new market leadership will gradually emerge and market breadth will expand—as seen in the Dow Jones Transportation Average hitting another high this week.

However, he also cautions that the second derivative of earnings growth (i.e., the pace of growth slowing) will become increasingly important after Q2 reporting season and into the summer, while all valuation metrics still suggest tech sector valuations remain high.

In addition, traditional asset classes and internal correlations within asset classes are also experiencing unprecedented breakdowns; for example, the 3-month correlation between gold and crude oil has fallen to an extreme inverse level in 35-year history, increasing the difficulty for both risk management and portfolio construction.

Risk Warning and DisclaimerThe market has risks, investment needs caution. This article does not constitute individual investment advice, nor does it take into account any particular user's special investment objectives, financial situation, or needs. Users should consider whether any opinions, views, or conclusions in this article are appropriate for their particular circumstances. Investing accordingly is at your own risk. ```