As we begin the new year, investor repositioning is underway in US equities. The first week of trading has seen cash raised being redeployed further out the risk curve into cyclicals and value sectors, which are perceived to benefit from current bottlenecks in AI. While the broader rotation remains a focus, single stock dispersion has picked up significantly, with realized correlations off the zero-bound but still suppressed as dispersion amongst sectors and themes remains strong.

Single stock volatility has remained at a healthy premium to index volatility, but is off record highs witnessed prior to 3Q25 earnings. Within the S&P 500 and Russell 2000, “Value/Cyclical” sectors have emerged as winners, while “Growth/Tech” sectors have underperformed. This is likely due to investor positioning, with hedge fund gross exposure high coming into the year driven by an increase in shorts into year end. The S&P 500 and Russell 2000 stock short interest screens are currently at the 100th percentile vs 5 years ago.

Looking closer at individual stock performance, the iShares Russell 2000 ETF (IWM) has outperformed the PowerShares QQQ ETF (QQQ) by 300 basis points this week alone. Cyclicals have also outperformed defensives by 270 basis points. While large-cap growth underperformed, investors are still adding to cyclicals across most subsectors, including tech. Mega cap tech remained a source of funds, but there was dispersion with Google (GOOG) and Amazon (AMZN) seeing inflows.

In healthcare, reversion bounce in managed care and follow-through life science tools rally, while pharma and facilities are relative sub-sector laggards. The UBS Speculative Growth basket (UBXXSPEC Index) gained 11.7% this week alone, while the Semis ex AI basket (UBXXSEMX Index) gained 8.8%.

Overall, investor repositioning and single stock dispersion are key themes in US equities at present. While the broader rotation remains a focus, individual stock performance is also worth monitoring as investors continue to adjust their positions.