Market Speed Bump

Do you like road trips? They’re fun in theory — you set off for far away places and sights unseen, chart a map like an old-world explorer, and do things you’d normally never get to do. What better way to harness your joie de vivre, right?!

Honestly, I’m a bit iffy on them. For all that’s appealing and exciting about them, they can be straight up uncomfortable. You have to worry about things like sudden tire blowouts, detours, bad weather, or getting caught in bumper-to-bumper traffic.

Investing during bull markets is a little like taking a long road trip. You start with the sun shining, clear visibility and an open road ahead, as we did coming into 2026 and through the start of the year. The macroeconomic highway was wide open and investors largely had their pedal to the metal.

We saw this manifest as a massive, powerful rally driven by the Momentum factor. (For the uninitiated, factor investing means buying stocks with a desired characteristic — in this case stocks that are already performing well — and avoiding or outright shorting stocks with the opposite exposure.)

During the early parts of this year, being in the fast lane was fun (and profitable). Treasury yields were trending lower, the wind was at our backs, and it felt like stocks were inevitably going to go even higher.

However, just like the weather, macroeconomic conditions change. When the Iran war began, oil prices spiked and inflation fears resurfaced, creating some pretty slick road conditions. And the tricky thing about driving in the Momentum lane is that although you can’t always see what’s in front of you, you still assume the road ahead is clear.

At the risk of taking this analogy too far, the brake lights finally came on in late June, when SpaceX’s IPO and Alphabet’s secondary share sale fueled a surge in equity issuance.

When the most crowded, fastest-moving lane of the market hits the brakes at the exact same time, things can get dicey. This summer that showed up as a rapid unwind of debt-fueled bets, a crash in semiconductor and electrical equipment stocks, and the near-collapse of the AI-focused hedge fund Situational Awareness in July.

All told, there was an 18% drawdown in the Momentum trade between its peak on June 22 and July 29, when it sorta seemed like things couldn’t get much worse. Although news that Situational Awareness’s distressed positions were offloaded to Citadel on July 30 marked a temporary bottom, the Momentum trade still hasn’t really recovered. Talk about a speed bump.

Shifting to Defensive Gears

Still, investors didn't get off the highway. Instead, they collectively shifted down into a safer gear: Money flowed out of the high-flying stocks and into more defensive factors like:

•   Low Volatility (companies with the most muted stock price swings)

•   Value (companies with attractive valuation multiples)

•   Quality (companies with low leverage, high profitability, and operational stability)

•   Dividend Yield (companies with a track record of reliable, recurring cash payouts)

This rotation made sense, given nerves about geopolitical risk, a hawkish Federal Reserve, and inflation pressure. Hypothetical profits five or 10 years down the road are less appealing than the certainty of today’s cash flows.

As you can see below, these defensive factors performed much better than Momentum stocks, which have declined 16% since that June turning point and are actually down 3% on the year.

Keep Both Hands on the Wheel

When you watch a rotation like this unfold, the temptation is to make a sharp turn. I.e. panic-dump your growth and technology stocks and plow 100% of your money into defensive names. But let's be clear: Veering from one extreme to another to chase returns, though a common impulse, tends to be a losing game in the long run.

Plus, panicking after you’ve already taken losses is generally the precise time you shouldn’t panic. Instead, let periods like these serve as reminders of why it can pay to be diversified.

If you have a well-constructed portfolio with plans and goals in mind, you probably already own some sports cars (e.g. Momentum & high-flying tech stocks), some heavy-duty trucks with great shock absorbers (e.g. Defensive stocks), and some good ol’ reliable mid-sized SUVs (you get the point). When the fast lane jams up and one part of your portfolio zigs, the defensive side zags, smoothing out your overall journey and keeping you on the path to achieving the investment goals you set for yourself.

Conversely, the turbulence of the last few months highlights the risks — in my opinion, unappreciated risks — associated with being too concentrated. If your entire net worth was invested in just two or three AI tech companies because they were the ones that came into this year doing the best, you felt every single pothole this summer and then some.

As the name suggests, the road to long-term wealth is long. You’ll inevitably have to drive through all kinds of market weather. Keep both hands on the wheel. To make sure you’re not too concentrated in one sector, rebalance your portfolio by changing lanes every so often. And whatever you do, stay on the road.

For educational purposes only. This content is not investment advice or a recommendation to buy or sell any security. Investing involves risk, including the possible loss of principal, and past performance does not guarantee future results. Any third-party information or links are provided for informational purposes only and do not constitute an endorsement or affiliation by SoFi.

Communication of SoFi Wealth LLC an SEC Registered Investment Adviser. Information about SoFi Wealth's advisory operations, services, and fees is set forth in SoFi Wealth's current Form ADV Part 2 (Brochure), a copy of which is available upon request and at www.adviserinfo.sec.gov. Mario Ismailanji is a Registered Representative of SoFi Securities and Investment Advisor Representative of SoFi Wealth. Form ADV 2A is available at www.sofi.com/legal/adv.

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