Global equities rose again, led by US markets. Cyclical sectors outperformed, while defensive and low-volatility shares lagged.
The VIX fell back below 20. Asian equities traded higher, European futures pointed up, and US futures were broadly flat, despite ongoing geopolitical tensions.
Technology Sector Divergence
Within technology, software lagged while semiconductors led. Semiconductors outperformed software by about 4pp in the US and about 7pp in Europe on the day.
Over the past nine months, hardware was the best-performing US industry and software was the worst. Hardware outperformed software by about 125 percentage points over that period.
The update also referred to asset allocation beyond listed equities, including private equity and private credit. It described a shift in performance patterns within the technology sector.
We are seeing a clear signal that the cyclical rally has legs, as defensive and low-volatility stocks are being sold off. The March 2026 non-farm payrolls report, which added a strong 285,000 jobs, supports this risk-on mood. This suggests favoring call options on industrial and financial ETFs over the next few weeks, as these sectors should continue to lead.
Volatility And Hedging Opportunities
With the VIX falling below 20, it’s a reminder of how we behaved during the market calm we saw last year in 2025 before the autumn correction. This sustained low volatility, with the index holding between 17 and 19 for most of March 2026, makes buying options relatively inexpensive. It presents a good opportunity to purchase cheap, out-of-the-money puts on the broader S&P 500 as a low-cost hedge against any sudden market shifts.
The most important trend unfolding is the massive gap between hardware and software. Year-to-date for 2026, the SOX semiconductor index is up over 25%, while software ETFs like IGV have struggled to stay positive. We believe a pairs trade, going long semiconductor calls while simultaneously buying puts on software sector funds, is the most effective way to play this continuing divergence.
This environment highlights the danger of reacting to every piece of breaking news, a lesson we learned from the geopolitical noise throughout 2025. Recent data from the CBOE shows the put/call ratio dipping to 0.75, indicating a strong appetite for calls and limited demand for downside protection. Therefore, we should focus on these underlying sector rotations rather than the day-to-day market chatter.
