U.S. tech momentum stocks posted their biggest one-day gain on record, but is the rout over?

U.S. tech momentum stocks staged a dramatic rebound on Tuesday (July 21). Morgan Stanley's TMT momentum factor rose more than 12% in a single day, marking its largest one-day gain on record, exceeding even any single-day performance during the 2000 dot-com bubble era.

The Goldman Sachs High Beta Momentum Long Index (GSCBHMOM) rose about 8.5% on the single day, its strongest one-day performance since April 2025; the Long-Short High Beta Momentum Index (GSPRHIMO) climbed 9.5%, the strongest since 2021, approaching the all-time high level since 2003.

The Nasdaq Composite Index rose about 1.3% that day, leading the three major indices. The semiconductor sector was the biggest driving force — the Philadelphia Semiconductor Index posted a 4.6% single-day gain, and the VanEck Semiconductor ETF rose about 4.5%. Micron Technology surged over 10%, Intel climbed about 8.6%, Western Digital rose roughly 14%, Cerebras Systems gained about 18%, and Cipher Mining jumped over 11%.

This rebound came after three consecutive trading days of declines, and also followed a cumulative 33% plunge in momentum stocks.

01

Why did this rebound happen? Short-squeezes are in play

To understand this rebound, we first need to grasp how deep the previous declines were.

Goldman Sachs data shows that high-beta momentum stocks fell a cumulative 33% in just a few trading days, making it one of the most brutal pullbacks since the dot-com bubble burst. The Goldman Sachs High Beta Momentum Index once fell below its 200-day moving average, hitting the lowest point since January this year, with the most severe oversold level since last August.

The deeper the fall, the greater the rebound elasticity — this is the basic logic of the market.

This rebound is largely a "short-squeeze" market rally. A large number of investors who shorted momentum stocks, especially trend-chasing traders in South Korea and Japan, suffered heavy losses over the past two weeks — the South Korean market even witnessed widespread margin call events that severely impacted local retail investors. When these short sellers are forced to cover their positions, buying demand forms a self-reinforcing upward spiral.

Analysis from Zacks Investment Research pointed out that Micron Technology had previously fallen below the neckline of a "head-and-shoulders" pattern on the daily chart, presenting a bearish technical formation. But on Tuesday, its stock price soared more than 10%, reclaiming the neckline level. "False breakouts often trigger sharp reverse volatility, as late-to-act bears and short sellers get trapped."

02

Market breadth remains weak, raising doubts over the sustainability of the rebound

The rebound figures look striking, but the underlying structure is not healthy.

Analysis from BTIG strategist Jonathan Krinsky shows that overall trading volume was low on Tuesday, with trading volumes for SPY, QQQ and S&P 500 spot assets all 20% to 30% lower than the 20-day average. Meanwhile, the S&P 500 Index rose nearly 1% that day, but the number of declining stocks still outnumbered advancing ones — this year has seen the most frequent divergences between price and market breadth on record, and Tuesday marked another such occurrence.

Goldman Sachs trader data shows that overall exchange trading volume was about 17% lower than the 20-day average, with market maker book liquidity standing at only 6.83 million dollars, and market activity scoring just 3 out of 10 points.

In other words, this rebound is more like a concentrated surge of a small number of heavy-weight stocks, rather than a broad-based recovery.

Michael Ball, a macro strategist at Bloomberg, analyzed that "it is too early to declare the correction over." Demand for put options on semiconductor ETFs and previous AI star stocks remains high, and negative Gamma exposure in the Nasdaq, semiconductor ETFs and related individual stocks means market makers will chase rises and sell off dips instead of smoothing volatility — which amplifies both upward surges and subsequent downward declines.

03

BTIG warns: Rebound has hit key resistance level, suggests reducing positions on strength

Not everyone is optimistic about this rebound.

Jonathan Krinsky of BTIG explicitly warned, suggesting investors "fade the rally (reduce positions on strength)". He previously predicted that the momentum stock rebound would face strong resistance in the 730-750 range, and Tuesday's rebound precisely pushed the GSCBHMOM to the lower edge of this resistance zone.

Krinsky stated: "Extreme volatility, coupled with historic stock differentiation, is a signal that the market is undergoing a full-scale correction." He expects high-beta momentum stocks to start stalling after entering the core of the resistance range between Wednesday and Thursday.

Looking at historical data, since 1999, the high-beta momentum long index has recorded a single-day gain of over 7% above its 200-day moving average only 10 times. Three of these instances occurred this year, three in early 2021, and three in early 2000. Krinsky pointed out that this data "not only illustrates the rarity of this market move, but also shows we are continuously seeing statistical characteristics that echo the 1999-2000 period."

04

Goldman Sachs, UBS: Momentum sell-off is nearing its end, suggest gradually adding positions

Contrary to BTIG's cautious stance, both Goldman Sachs and UBS believe this momentum sell-off is entering its final stage, and advise investors to seize the opportunities.

Julia Mensch of Goldman Sachs noted in a report that the firm had warned last week that the momentum sell-off was "entering its late phase". She wrote: "With positions already largely unwound (Goldman Sachs prime brokerage data shows momentum exposure is at the 64th percentile over the past year and the 93rd percentile over the past five years), and no new fundamental catalysts behind this sell-off, we believe momentum has room to revert to its long-term trend, and this sell-off could be a good opportunity to increase momentum exposure or buy AI stocks on dips."

Michael Romano, head of hedge fund equity derivatives sales at UBS, also expressed similar views in a client report, arguing that improving AI fundamentals are a buy signal. But he also advised investors to "build positions gradually instead of going all-in at once."

Romano wrote: "The momentum de-risking narrative is and remains a compelling thesis. Building positions in tranches is a prudent move." He expects the momentum sell-off to bottom out by the end of July (if it hasn't already), adding: "Once the market turns, I expect liquidity to drive a significant upward overshoot in prices."

However, Goldman Sachs also retains a degree of caution — given the extremely high recent volatility and the dense upcoming earnings season, the firm advises investors to gain exposure through "limited-loss structures" rather than holding outright long positions.

05

Earnings season is the next key variable

The sustainability of this rebound largely depends on this week's earnings releases.

According to Reuters reports, a total of 113 S&P 500 constituent companies (accounting for about 18% of the S&P 500's market capitalization) will release earnings this week. Among them, Alphabet (GOOGL)'s earnings report is regarded as "the most important data point of the week", and the market will focus heavily on its full-year 2026 capital expenditure guidance — which is widely expected to be raised, providing important clues about the direction of AI spending.

Adam Turnquist, chief technical strategist at LPL Financial, said: "The current focus is no longer just on the total volume of capital expenditure; the next point of attention will be return on investment and spending quality, which we believe will become a core theme in the second half of the year."

He also pointed out: "We expect continued volatility in the semiconductor sector, as overbought conditions need to be digested, profit-taking pressure will emerge, and crowded positions also need to be unwound. From a fundamental perspective, we don't see any substantial changes."

According to Reuters reports, 66 S&P 500 companies have released earnings so far, and about 88% of them have reported profits exceeding analyst expectations. 3M (MMM) surged over 9% in a single day, and General Motors (GM) rose about 5%, both sought after by investors due to their better-than-expected performance.

06

Bonds and macro: Another hidden risk

While the stock market is celebrating, the bond market is sending out warning signals.

U.S. Treasury yields rose across the board that day: the short-end 2-year yield rose 5 basis points, the 30-year yield rose 2 basis points, and long-end yields climbed to a two-month high, erasing the bond market gains brought by last week's lower-than-expected inflation data.

Oil prices are one of the driving forces. Brent crude futures closed back above 90 dollars per barrel, the first time since June 11. Tensions in the Middle East continue to escalate — the Houthi movement in Yemen announced a blockade of the southern entrance to the Red Sea, and two oil tankers carrying Saudi crude oil turned back in the Red Sea. MarineTraffic data from Kpler shows that even before the blockade announcement, cargo loading volumes passing through the Bab el-Mandeb Strait had already dropped 34% over the past two weeks.

Izaac Brook, an interest rate strategist at RBC Capital Markets, said: "Today's market moves are primarily the result of continued rising energy prices. Interest rate volatility has been amplified by breaking through closely watched technical levels — 4.20% for the 2-year yield and 4.60% for the 10-year yield — as well as the typical low-liquidity trading environment in summer."

Cameron Crise of Bloomberg warned that long-dated Treasury yields are at a critical point where the 5% level is shifting from a resistance level to a support level, with the next obvious target being 5.5% — "which will deal a shock to the stock market, especially when stronger-than-expected economic upside pushes yields higher and exerts a negative impact on equities."

Kevin Boova, head of IG Credit at Goldman Sachs, also warned that credit spreads for large-scale tech companies have hit new highs, and "the hyperscale cloud/AI/data center sector feels somewhat fragile again."

This article is from the WeChat public account "Wall Street CN Max", author: Long Yue, published with authorization from 36Kr.