AI Stocks Stage Epic Rebound! Tech Stocks Record Largest Single-Day Surge in History. Is the Crash Really Over?

According to <i>Wall Street Seen</i>, U.S. tech momentum stocks staged a strong rebound on Tuesday (21st). Morgan Stanley's TMT momentum factor surged over 12% in a single day, marking the largest single-day gain on record, even surpassing any single-day performance during the 2000 internet bubble period.

Goldman Sachs' high-beta momentum bullish index (GSCBHMOM) rose approximately 8.5% in a single day, marking the best single-day performance since April 2025. The high-beta momentum long-short index (GSPRHIMO) surged 9.5%, marking the largest single-day gain since 2021 and approaching historical highs since 2003.

The Nasdaq Composite Index rose approximately 1.3% that day, leading the three major U.S. stock indices. Semiconductor stocks were the biggest drivers, with the Philadelphia Semiconductor Index surging 4.6% and the VanEck Semiconductor ETF rising approximately 4.5%. Micron Technology (MU-US) surged over 10%, Intel (INTC-US) rose approximately 8.6%, SanDisk (SNDK-US) soared approximately 14%, Cerebras Systems surged approximately 18%, and Cipher Mining also rose over 11%.

This rebound occurred after three consecutive trading days of declines and after momentum stocks had cumulatively plummeted by 33%.

Why did this rebound happen? Short sellers were 'squeezed'.

To understand this rebound, one must first grasp how severe the previous decline was.

Goldman Sachs data shows that high-beta momentum stocks cumulatively declined by 33% in just a few trading days, making it one of the most dramatic pullbacks since the internet bubble burst. Goldman Sachs' high-beta momentum index briefly fell below the 200-day moving average, reaching the lowest level since January of this year, with the oversold condition reaching a new high since August of last year.

The deeper the decline, the stronger the rebound force is often, which is a basic market logic.

This rebound was largely attributed to a 'short squeeze'. A large number of investors who shorted momentum stocks, particularly momentum-chasing traders from South Korea and Japan, suffered heavy losses over the past two weeks. The South Korean market even experienced a large-scale margin call event, severely impacting local retail investors.

When short sellers are forced to cover their positions, buying pressure forms a self-reinforcing upward cycle.

Zacks Investment Research pointed out that Micron Technology had previously broken below the neckline of a 'head and shoulders' pattern on the daily chart, turning technically bearish. However, on Tuesday, the stock surged over 10%, returning above the neckline.

Zacks stated: 'False breakouts often trigger violent reverse movements because short sellers and those who shorted are trapped.'

Market breadth remains weak, casting doubt on the rebound's quality

Although the rebound was surprising, the internal market structure was not healthy.

BTIG strategist Jonathan Krinsky pointed out that overall trading volume on Tuesday remained low, with SPY, QQQ, and S&P 500 spot trading volumes all 20% to 30% lower than the 20-day average.

At the same time, although the S&P 500 index rose nearly 1%, the number of declining stocks still outnumbered the advancing stocks. This year, the divergence between price trends and market breadth has reached a new high, and this phenomenon occurred again on Tuesday.

Goldman Sachs trader data also showed that overall exchange trading volume was approximately 17% lower than the 20-day average, with market maker account liquidity at $68.3 million, and market activity at 3 out of 10.

In other words, this rebound was more like a concentrated surge in a few heavily weighted stocks, rather than a full market recovery.

Bloomberg macro strategist Michael Ball stated: 'It is still too early to declare that the correction has ended.'

He pointed out that demand for put options on semiconductor ETFs and previous AI star stocks remains high, and there are still large negative gamma positions in the Nasdaq, semiconductor ETFs, and related individual stocks. This means that market makers will continue to chase prices up and down rather than suppress volatility, which not only amplifies the rise but may also amplify future declines.

Not all market participants are optimistic about this rebound. BTIG's Jonathan Krinsky explicitly advised investors to 'fade (sell) on strength.'

He previously estimated that the rebound in high-beta momentum stocks would encounter strong resistance in the 730 to 750 point range, and Tuesday's rebound pushed GSCBHMOM to the lower edge of this resistance area.

Krinsky stated: 'Extreme volatility, combined with historic individual stock divergence, is a sign that the market is undergoing a full correction.' He estimated that high-beta momentum stocks would gradually lose momentum after entering the core of the resistance area from Wednesday to Thursday.

From historical statistics, since 1999, there have only been 10 instances where the high-beta momentum bullish index has stood above the 200-day moving average and had a single-day gain of over 7%.

Three of these occurred this year, three occurred in early 2021, and the other three occurred in early 2000.

Krinsky stated that this statistic 'not only highlights the rarity of this market but also reflects that the market continues to exhibit historical characteristics similar to those of 1999 to 2000.'

Goldman Sachs and UBS: Momentum selling nearing the end, can consider gradual positioning

Compared to BTIG's conservative stance, Goldman Sachs and UBS both believe that this round of momentum stock selling is nearing its end and advise investors to seize the opportunity to position themselves.

Goldman Sachs analyst Julia Mensch pointed out in a report that Goldman Sachs had previously warned the market that momentum stock selling had 'entered the later stages.'

She stated: 'Current positions have been significantly cleared (Goldman Sachs prime brokerage data shows that momentum exposure is at the 64th percentile of the past year and the 93rd percentile of the past five years), and this selling has not had a new fundamental catalyst. Therefore, we believe that momentum strategies have the opportunity to return to long-term trends, and this correction may be a good opportunity to increase momentum positions or position AI-related stocks on dips.'

Michael Romano, the head of hedge fund equity derivatives sales at UBS, also holds a similar view, believing that the improvement in AI fundamentals remains a buying signal.

However, he advised investors to 'position gradually rather than all at once.'

Romano stated: 'The logic of momentum derisking still holds, and gradually establishing positions is a more prudent approach.'

He estimated that momentum stock selling would bottom out by the end of July (if it hasn't already), and pointed out: 'Once the market reverses, liquidity may drive prices to surge.'

However, Goldman Sachs still retains some stance. Due to the recent high volatility and the concentrated earnings season, Goldman Sachs advised investors to establish exposure through 'limited-loss structures' rather than directly holding long positions.

The continuation of this rebound largely depends on corporate earnings this week. According to Reuters, 113 companies in the S&P 500 (accounting for approximately 18% of the total market value of the S&P 500) will release earnings this week.

Among them, Alphabet's (NASDAQ: GOOGL) earnings are seen as 'the most important data point this week,' with the market focusing on its full-year capital expenditure guidance for 2026. The market generally expects the company to raise its capital expenditure, providing important clues for the AI investment trend.

Adam Turnquist, chief technical strategist at LPL Financial, stated: 'The market is now not only focused on the size of capital expenditure but will also focus on investment returns and expenditure quality next. We believe this will be an important issue for the market in the second half of the year.'

He also pointed out: 'We expect semiconductor stocks to continue to fluctuate because the overbought state needs to be digested, profit-taking pressure will gradually emerge, and crowded trading also needs to be readjusted. From a fundamental perspective, we believe there has been no substantial change.'

According to Reuters, as of now, 66 companies in the S&P 500 have released earnings, with approximately 88% of companies reporting earnings better than market expectations.

3M surged over 9% in a single day, and General Motors rose approximately 5%, both due to better-than-expected earnings and being favored by the market.

Bond market warning

While the stock market celebrated the rebound, the bond market issued warnings. That day, U.S. Treasury yields rose across the board, with the 2-year yield rising by 5 basis points and the 30-year yield rising by 2 basis points. Long-term yields even reached a two-month high, completely offsetting the upward momentum brought by last week's lower-than-expected inflation data.

Oil prices were also a major driver. Brent crude oil futures rose back above $90 per barrel for the first time since June 11.

Tensions in the Middle East continued to escalate, with the Houthi armed group announcing a blockade of the southern entrance to the Red Sea. Two tankers carrying Saudi Arabian oil turned back in the Red Sea.

Kpler's MarineTraffic data showed that even before the blockade was announced, the number of ships passing through the Bab el-Mandeb Strait had decreased over the past two weeks.