Stocks popular with retail traders have lost a quarter of their value since June, marking the worst drawdown for YOLO traders in over two years. The sharp decline, concentrated in July, has been driven by a rapid unwind of momentum trades that had fueled the rally earlier this year.
Worst Drawdown Since 2022
The group of stocks favored by everyday investors fell roughly 25% from their June peak, according to market data. The selloff accelerated in July, prompting traders to label it a 'brutal July selloff.' It's the steepest decline for these names since the 2022 bear market, when rising interest rates crushed speculative assets.
What Triggered the Unwind
The drop stems from a broad reversal of momentum trades, according to analysts tracking the moves. Over the first half of 2024, a handful of high-beta retail darlings had surged on optimism around artificial intelligence and rate cuts. But as those bets grew crowded, a shift in sentiment — compounded by lackluster earnings from some key names — forced traders to exit positions fast. The selling fed on itself, accelerating the decline.
For YOLO traders, the losses have been especially painful. Many had leveraged up on margin or options to amplify gains, leaving them exposed when the tide turned. Some brokerages reported a spike in margin calls as stocks slid.
With the selloff now nearly a month old, the question is whether the worst is over. The S&P 500 has also dipped, but the retail-favorite basket remains under pressure. Traders are watching for second-quarter earnings from companies in the group, due in the coming weeks, to see if fundamentals can stem the bleeding. If momentum continues to unwind, further losses could test the resolve of the retail crowd that helped drive the rally.
