The rotation we saw Friday out of momentum and AI infrastructure names continued yesterday. While that took Tech and parts of the Industrial sectors lower, the rest of the equity market performed relatively well as the S&P equal-weight rose 0.6%. Rotational flows and mean-reversion were also apparent in REITs, financials and software which have underperformed. There was a rally late in the day after President Trump said he was postponing a US attack on Iran at the request of Middle East leaders due to “serious negotiations”. The S&P 500 recouped much of its intraday losses to close only slightly lower while the Russell 2000 lagged, falling 0.7%. Yields were relatively tame after surging on Friday.

S&P futures drifted lower overnight giving back about half of the late day rally as the Iran situation remained murky at best with President Trump saying the pause was only temporary. However, shortly before the open Treasury yields started to move sharply higher again and equities extended to the downside. That being said the pullback, at least at the index level, has been pretty orderly with the VIX hovering ~18. Early on there was a continued rotation out of crowded tech and other momentum stocks but the buy the dip crowd is starting to emerge. Defensive sectors are outperforming with healthcare leading the way. Major indices have bounced off the lows with the S&P down ~0.25%. Small and mid-cap indices are underperforming slightly down ~0.5%, given the relative exposure to rising interest rates.