Goldman Sachs Flags 18% Crash in High-Beta Momentum Basket as AI Rally Enters Summer Lull

According to Goldman Sachs, the bank's flagship momentum basket (GSPRHIMO) plummeted 18% over two days, marking the largest two-day decline since the 2020 pandemic. The selloff was triggered by multiple pressures: momentum factors have surged 127% since the start of the year, making positions vulnerable to profit-taking; U.S. markets faced reduced liquidity ahead of the Independence Day holiday; and positioning has become extremely crowded, with hedge fund momentum exposure in the 92nd percentile over the past five years.

Despite the sharp decline, Goldman Sachs strategist Guillaume Soria noted early signs of buying on weakness and recommended shifting toward defensive sectors in the second half of 2026, particularly healthcare and European defense stocks. However, the bank cautioned that if deleveraging continues, the momentum factor could fall as much as 50% from its peak—roughly double the current decline—given the extreme positioning crowding.