The US stock market saw a mixed day of trading on Wednesday, with the S&P 500 down 80 basis points (bps) despite a hotter-than-expected Consumer Price Index (CPI) reading. The CPI growth rate reached its highest level since 2023, but the market was unable to sustain gains due to a correction in semiconductor stocks. The Semi ETF (UBXXSEMI) fell by 5.6%, pulling the broader market lower while yields rose. The AI trade (UBXXAIW) also reversed lower, down 4.2%, as investors became more cautious in the face of stretched technicals in pockets like semis.

Despite the correction in semis, other areas of the market saw gains. The broad ex-AI 400 basket (UBXXX400) and Defensives (UBXXDEFS) were up 25 bps and 1%, respectively. The Mideast Risk basket (UBXXMERR) was one of the few in the green, up 10 bps, as President Trump pushed back on the latest Iranian diplomatic response and investors remained optimistic about a quick deal.

Investors looking to hedge against a potential drawdown may want to consider a costless call spread collar on Software AI Risk (UBXXSORK). A 1-month 90% put can fund a 110-125% call spread, providing a cushion against potential downside while still allowing for some upside participation. The 20-day rolling correlation between software and semis is the most negative it has been in several years, as seen in the chart below.