Uncertainty in the US equity market has led to a risk off sentiment, with investors becoming cautious and taking profits. According to UBS’s high touch flows, hedge funds are net buying, while long only investors are marginally better for sale. The derivatives desk is seeing demand for VIX upside and tactical very short dated SPY downside.

The Tech sector is leading the decline, with the AI Semis index down 2.3%, Profitless Tech index down 2%, Software index down 3%, and Mega Cap Tech index down 2%. Some investors are shifting their funds into Telco, which have been a source of funds for most of the year. Interestingly, IWM is holding its ground with Energy index up 2.24% and Materials index up 1.4% in positive territory.

On the short side, there are signs of pain, as confirmed by UBS’s high short interest basket, which is up 2.5%. This suggests that investors are taking profits and reducing their exposure to riskier assets.

Overall, the current market sentiment is cautious, with investors preferring to wait and see how events unfold before making any significant moves. With uncertainty surrounding the Fed and geopolitical risks, it’s likely that this cautious approach will continue in the near term.