The US equity market saw a significant shift on Tuesday, with several sectors experiencing notable weakness. According to UBS’s S&T division, the Low Quality/High SI squeeze led to a correction in small and midcaps, as well as higher-beta stocks. The Consumer Discretionary sector, including Travel, Autos, and Apparel & Footwear, was particularly affected, with significant weakness seen in these areas. While Mega Cap Tech held up relatively well, there were some notable pullbacks in the broader tech sector, with profit taking in AI picking up.

S&P volatility was firm, with the extreme compression in index volatility making it difficult for implieds to find a lower floor than where they currently sit. This led to increased interest in longer-dated flows, with a 18mm x 26mm vega Mar vs Dec 26 package (rolling short Mar upside into Dec strangle) and two-way flows in longer dated packages also seeing upside bought. Gold upside continued to be popular, with another call spread monetized and rolled in Oct weeklies. The Strategy team at UBS highlighted in their Global Vol Weekly that the investment bank sees further upside for Gold amid a supportive macro environment and broadening investor base. However, outright calls have become relatively expensive for adding protected GLD longs, and the team suggests exploiting inverted skews via call spreads.

In terms of specific hedges, there were several notable trades seen in the market. These included 120k Nov HYG put spreads (a common theme) and a large XLF Oct-Nov put roll in ~100k. Additionally, Brazil upside was incredibly active in longer dated buckets, with volumes nearly 4x average. Several 2026-2027 call spreads were rolled and majority traded here.

Overall, the shift in the US equity market on Tuesday highlights the ongoing volatility and uncertainty in the market. While some sectors are experiencing weakness, others remain resilient. As always, it’s important to stay informed and adapt to changing market conditions when making investment decisions.