The Market Brief
U.S. stock index futures rose slightly on Monday, following last week's chip-stocks-led pullback, as investors awaited a key slate of earnings that could test Wall Street's AI-driven rally.
Macro Viewpoint
The S&P 500 finished last week down 1.6%, as strong sentiment surveys and a benign inflation print couldn’t offset a continuing selloff in semis and other AI infrastructure stocks.
That AI capex surge has driven much of this year’s market gains, lifting semiconductor stocks and other buildout beneficiaries while helping major U.S. indexes hit record highs.
Investors were also watching developments in the U.S.-Israel war with Iran, following a recent escalation in the nearly five month conflict.
Prime Intelligence
Hedge funds just unwound five years of tech optimism in six weeks, and the chart below shows exactly how fast.
The 8 week net flow ending July 16 is the most negative print in Goldman's decade plus dataset, the largest cumulative Info Tech selling on record, rivaled only by summer 2024. It follows gross and net exposure hitting five year highs of 23.4% and 26.3% in early June, driven by long and short sales in roughly equal notional rather than a one sided short bet. Tech Hardware, Storage & Peripherals, and IT Services led the selling, with Semis & Semi Equip and Software also net sold.
Takeaway: The forced selling is largely done. Hedge funds have already cut tech exposure to some of its lightest levels in years, so the next move in the sector depends on earnings and capex commentary, not more de-risking.
The Market Brief
In today’s brief we break down why dealer positioning has quietly flipped from a stabilizing force to a potential volatility amplifier. We unpack what happens to markets when that gamma cushion disappears on the next leg down.
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