The market has continued to experience volatility, with a sharp rotation out of Megacap Tech (GSTMTMEG) and into Staples (GSXUSTAP) and Healthcare (GSHLCBPH). Initial weakness in semis sparked by Japanese memory producer Kioxia’s disappointing earnings report, which saw revenue decline by 16% and operating profits fall by 55% year-over-year. This led to a sell-off in companies such as SanDisk (-7%), Western Digital (-4%), and Seagate Technology (-4%).

The Momentum (GSPRHIMO) sector had its second-worst day of the year since the DeepSeek crash, with a loss of 620 basis points. Most of the gains in momentum this year have been driven by the long leg, which has also caused the most recent pain. Meanwhile, the Past Winners (GSXUHMOM) sector lost 633 basis points today.

Hedge funds are currently using Healthcare (HC) as a correlation hedge for AI weakness. XLV is trading up for the ninth day in a row and is the best-performing sector outside of energy. However, HFs are actively buying the space but are not seeing longer-duration investors step up to the plate yet.

In terms of flows, overall activity levels are currently at 4 out of 10. Across the floor, there is a slight bias towards buying, with demand in Healthcare and Information Technology versus supply in Communication Services, Industrials, and Consumer Discretionary. Hedge funds are slightly biased towards selling, led by supply in Information Technology, Financials, and Consumer Staples.

Overall, the market continues to experience rotation and volatility, with investors seeking shelter in defensive sectors such as Healthcare and Staples. While Hedge Funds are actively buying these spaces, longer-duration investors have yet to step in, leading to a mixed picture in terms of flows.