US momentum stocks have recently experienced severe selling pressure, but Goldman Sachs analysts believe the current moment may be approaching an opportune buying time.
Data shows that Goldman Sachs' high beta momentum stock indicator has declined approximately 10 percentage points over the past five days, approaching its technical support level. Historical statistics indicate that similar sharp pullbacks often signal short-term rebound opportunities.
This selling wave began with a collective decline in high momentum stocks, particularly with artificial intelligence-related sectors facing enormous pressure. Goldman Sachs trader Julia Masch notes that the high beta momentum stock indicator is approaching support levels, with related indicator movements showing a clear shift in investor sentiment.
Momentum Stocks Experience Significant Pullback
Goldman Sachs' high beta momentum stock indicator (GSPRHIMO Index) has fallen approximately 13% since its August 11 peak, with over 10 percentage points of decline concentrated in the most recent five days. This indicator is currently approaching the bottom of its regression channel while also nearing the 200-day moving average, with technical indicators showing the sector is approaching oversold territory.
Notably, this wave of selling initially manifested as a rebound in short positions, but this week's price action suggests that long positions have faced greater pressure, particularly with artificial intelligence and other thematic sectors being impacted in this rotation.
Goldman Sachs data shows that the correlation between momentum and artificial intelligence sectors has increased recently, making today's selloff painful for the entire composite sector.
Momentum stocks refer to equities that have demonstrated strong recent price performance and are expected to continue maintaining upward momentum. This investment strategy is based on market momentum theory, which holds that stocks that have already risen tend to continue rising, while declining stocks may continue falling, at least in the short term.
Goldman Sachs' momentum stock indicator primarily tracks stocks with high beta coefficients (meaning they are sensitive to market volatility reactions) and have recently outperformed the market. These stocks typically exhibit higher volatility, performing excellently in bull markets but potentially suffering larger pullbacks when market sentiment reverses.
Historical Data Shows Rebound Opportunities
According to Goldman Sachs research, historically when the high beta momentum stock indicator falls more than 10% within 5 days, there is an 80% probability of positive returns in the following week. Historical data shows that after such sharp pullbacks, the median return rate is 4.5% within one week and reaches 11.05% within one month.
From a technical perspective, multiple technical indicators including regression lines, 200-day moving averages, and the Relative Strength Index (RSI) all suggest the current position may constitute a good entry point, unless next week's technology earnings trigger more persistent artificial intelligence stock selling.
European momentum stocks have similarly experienced difficult times, exemplified by the sharp decline in European defense sectors. However, pure momentum indicators (GSPUMOMO) and momentum indicators excluding artificial intelligence factors (GSPUMOXX) have performed relatively resilient, with more moderate declines.