Wall Street’s momentum trade got hammered, and UBS thinks that’s exactly why it’s time to buy back in.
The bank’s trading desk is telling clients the recent beating in AI and chip stocks looks close to over. Hedge funds have already pulled back hard, and UBS sees that as a setup for a rebound, not a warning sign.
What happened
Hedge funds cut roughly 5% of gross market value from momentum and semiconductor bets, one of the biggest pullbacks UBS has on record. That’s pushed positioning in chip and software names back down to where it stood in April.
Michael Romano, who leads hedge fund equity derivative sales at UBS, told clients the AI story still holds up fundamentally, even after the drop. His advice: ease back in slowly rather than jump in all at once. UBS’s momentum basket includes names like Sandisk, Broadcom, Oracle, KKR, Datadog and Microsoft.
Market reaction
UBS’s software basket has jumped about 20% since late June, a sign of just how fast money moves when positioning shifts. Momentum stocks also had a wild swing on Friday, flipping from a 3.5% loss to a 2.5% gain within two hours.
Romano says gains in banks and industrials lately were mostly short covering, not fresh buying. If money rotates back into AI names, those recently-hot sectors could cool off fast.
Romano expects the momentum unwind to bottom out by the end of July, if it hasn’t already. His call: “I’d expect a liquidity bubble to the upside when things turn.”
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Source: Yahoo Finance
