The latest market update from UBS Torsten Sippel highlights a significant rotation into value stocks, driven by the sale of tech positions. According to Sippel, the unwind/rotation into value & small caps and out of AI is underway, with moves exacerbated by the lack of liquidity due to below-average holiday volume and crowded positioning.

Sipehl notes that there is a bit of momentum unwinding, with the UBPTMOMO Index down 1% and value outperforming growth, as evidenced by the UBPTPVPG Index’s 1.8% gain. Defensives and energy are also outperforming, while tech remains the source of funds. While there is no new information on the AI side, the Nvidia-OpenAI deal highlights the industry’s circular nature when it comes to funding/capex.

Despite the rotation into value, shorts continue their squeeze, now up 23% since the beginning of the month. The lack of liquidity is exacerbating the moves, with a focus on month-end rebalancing for many funds, which also coincides with year-end.

Hedge fund flows have turned to sale, driven by institutional investors (33/67 – B/S), while hedge funds remain buyers (63/30/7 – B/S/SS). Tech and healthcare are better for sale, while autos and telcos are better to buy. Next potential catalyst for tech is MU tonight.

Overall, the update suggests that the market is experiencing a significant rotation, driven by the sale of tech positions and the subsequent flow into value stocks. The lack of liquidity and year-end rebalancing are likely contributing factors to the moves, and investors may want to keep a close eye on these trends in the coming days.