A sudden tumble in the high-flying factor names could be paving the way for a reversal, say Goldman Sachs traders, putting the spotlight on ETFs tied to the factor ahead of NVIDIA Corp.’s (NASDAQ:NVDA) closely followed earnings next week.
Nvidia’s quarterly results could decide the fate of momentum stocks and the ETFs that track them, after a two-week slide put the high-flying trade under pressure.
Nvidia is down more than 4% in the past week. Track its prices live, here.
Goldman’s High Beta Momentum basket, which bundles together the latest winners in the market and shorts losers, fell 13% from Aug 6 to Aug 19, its fourth drop of over 10% this year, as reported by Bloomberg. Historically, these sharp declines have tended to reverse rapidly from such a point. Goldman Sachs pointed out that in previous instances when the basket declined 10% or more in five days, it recovered during the next week, 80% of the time, with median returns of 4.5% during the next week and over 11% over the subsequent month.
The ETF Angle
Momentum-based ETFs such as the iShares MSCI USA Momentum Factor ETF (BATS:MTUM) and Invesco Dorsey Wright Momentum ETF (NASDAQ:PDP) offer investors direct exposure to the same high-octane growth stocks that dominate Goldman’s basket, the likes of Nvidia, Advanced Micro Devices Inc (NASDAQ:AMD), and Palantir Technologies Inc (NASDAQ:PLTR). That makes the funds especially sensitive to whether Nvidia’s earnings next week can revive enthusiasm in AI-related equities or deepen the selloff.
ETFs that follow the momentum factor have also experienced uneven returns in 2025, with several abrupt swings related to the AI trade. The latest rout also questions whether these vehicles can be used as tactical trades or not long-term positions.
What’s Driving The Sell-off
Losses in AI leaders such as Palantir, AMD, Super Micro Computer Inc (NASDAQ:SMCI), and even Nvidia, pulled the basket down. These formerly crowded trades now face profit-taking, high valuations, and nervousness about China’s competitive squeeze.
The Risk To Rebounds
Although Goldman’s traders point out that momentum has previously rebounded following steep drops, some warn that the factor has been erratic throughout the year. Bloomberg Intelligence’s Christopher Cain said that high-momentum stocks have some of the most costly valuations relative to low momentum in history.
The last catalyst will depend on Nvidia’s earnings next week. As the heaviest weight in the S&P 500 and Nasdaq 100, the chipmaker’s report could make or break whether momentum ETFs produce another record rebound — or this is merely the beginning of a more significant correction.
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This article Nvidia’s Earnings Could Make Or Break Momentum ETFs originally appeared on Benzinga.com
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