The AI Unwind Is Forcing A Historic Market Rotation | Weekly Roundup

**Felix** (0:00)
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All right, what's going on, everybody? Welcome back to another episode for Guidance Roundup Edition. Good to have the crew back together. We, yeah, couldn't quite make the schedule and work last week, because we were off last week, and then Tyler yelled the previous week for the fourth. So, whole crew back together. Here we are, what's going on, guys?

**Tyler** (0:50)
Quiet summer.

**Quinn** (0:50)
I missed you. Missed you guys, man.

**Felix** (0:53)
Yeah, I like what...

**Tyler** (0:56)
What's cooking? How was...
Did you go to any more soccer games?

**Felix** (1:01)
No, no soccer games. And it's just been heartbreak for me in that world over the last week.
France didn't make it, England didn't make it, Canada didn't make it. So, Argentina, Spain, it's... Yeah, I mean, it'll be a good final, but yeah, none of my teams made it.

**Tyler** (1:17)
You see that it was $30,000 per ticket or something?

**Quinn** (1:22)
Wow.

**Tyler** (1:22)
Have you heard that?

**Felix** (1:24)
Yeah.

**Quinn** (1:25)
I was hoping for Argentina, Spain final, so I'm pretty chuffed.

**Felix** (1:29)
Nice. There you go.

**Quinn** (1:31)
Sorry.

**Felix** (1:32)
Just a messy bandwagoner.

**Quinn** (1:34)
I mean, he's just...

**Felix** (1:36)
No, he's... Dude, he's amazing. Like, they fully...

**Quinn** (1:39)
Spain, like Spain made France look the worst.
They looked like D3, I mean, and France made everybody else look like that. It was... It's been some awesome games.

**Tyler** (1:51)
I know what Felix does to you every week, dude.

**Felix** (1:57)
Okay, guys, let's talk about markets. There is... Yeah, it's not a quiet summer. Definitely. I thought it was going to be the Doldrums summer. It is not the Doldrums summer. We are having the mother of all factored rotation, market structure, on-wines, everything in the kitchen sink going on.
Yes, to start, I want to look at just how severe these rotations have been. This is a great free website, Factor Watch. You can just look at the different factor rotations. So you can just see over the past 20 days, Momentum has had a 2.3 standard deviation on-wind, and then even more aggressive. Last three days, 3.3 standard deviation. So just a total high beta momentum on-wind at the same time that you have seen some pretty steady rotations into more value plays. Like I was looking at the charts today, QQQ is down almost 2% while equal weight S&P is up almost 1%. So yeah, man, there's a lot to dive in here.
Who wants to take the lead here on how you're thinking about it? What's going on? Tyler, you probably have some sweet charts. What are you thinking?

**Tyler** (3:06)
Yeah, I don't want to get to the Rivet EV too early, but we might as well. Let's go to slide 35 and we'll talk just about, I think Morgan Stanley, everyone's heard this stat by now, but this has been the worst momentum sell off in 27 years. And this just quantifies the standard deviations relative to last, I don't know, what is this, back to 2007 So you can kind of see the red line on the graph below. You can see how drastic the drawdown has been.
There's a couple really interesting things, and this is way different than every other drawdown we've had. To me, this feels a lot more like 2001, where you had the tech bubble unwind and that money rotated into like smaller cap stocks. We're seeing a lot of the same sort of things.
But check this out, you would expect, this is largely an equity phenomenon.
And if you look at the fixed income market, go to slide 36, this is the VIX of the TLT, which is the volatility of the TLT, which is at lows. Now you'd expect with this unwind and momentum, you have some cross-asset vol. Nope, not at all, not at all, not a little sniff. Then if you go to the next one, this is JP Morgan currency index. Again, no, no volatility in cross currencies too, which is wild to me as well, that you'd have this momentum unwind. And, you know, there's no cross currency vol.
And then if you go to the next one, and I'm sure all three of us have this chart, but this is the one month implied correlation. And when this is low, you know, it's a stock picker's market. There's a lot of different sectors doing different things. So this money is moving out of AI and AI infrastructure and going into different sectors. I mean, and then we can kind of talk about, just if you go to like 40, you can kind of see where it's going. This is the KRE. Financials have been on fire. They've been the beneficiary of a lot of this capital raising and CapEx.