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The stock market's momentum trade — among the most rewarding strategies of the current cycle — may be approaching a sharp reversal, with at least one strategist warning that an unwind this month could be violent.
Momentum strategies carry a well-documented seasonal vulnerability to July turbulence, and early market rumblings suggest this year's edition could prove more severe than the historical pattern alone would imply.
A Seasonal Weak Spot With an Elevated Threat Level Momentum as a factor has a recurring tendency to struggle during July.
The mechanics are familiar to most systematic allocators: crowded positioning in high-momentum names means that any catalyst prompting rotation can trigger outsized selling as managers de-risk in tandem.
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