A rapid selloff in high-flying momentum stocks is hitting retail investors harder than almost anyone else in the market. According to Bloomberg, the pain is the worst the strategy's staunchest individual bulls have felt in four years.
A basket of 50 stocks favored by amateur investors, which includes names like Robinhood Markets Inc. and Marvell Technology Inc., is on track for the worst month since 2022. The numbers are stark. A Jefferies basket of Russell 1000 firms with the highest retail participation has lost more than a quarter of its value since June.
The momentum trade had been one of the most profitable strategies in the market coming into this stretch. Retail traders piled into the stocks that had been moving the fastest and the most consistently upward, a pattern that rewarded buyers for much of the past two years. That run appears to have reversed sharply.
The strategy known informally as YOLO trading, shorthand for "you only live once," attracted a new generation of individual investors who embraced high-risk, high-reward bets on popular names. Platforms like Robinhood made it easier than ever to participate in those trades with little friction and no commissions.
When momentum crashes, the losses tend to be fast and steep. Stocks that rose partly because of their momentum, rather than underlying fundamentals, can fall just as quickly when sentiment shifts. That dynamic appears to be playing out now across the basket of retail favorites tracked by Jefferies.
The Bloomberg report did not identify a single trigger for the selloff but described it as a momentum crash hitting the strategy broadly. The losses through late July represent the most significant reversal for this category of retail-heavy trading since the market turbulence of 2022.
