One by one, high-conviction trades on Wall Street are falling out of favour. USO, the biggest US ETF tracking crude oil, is on pace for its steepest monthly outflow since 2009. SOXX, one of the largest semiconductor funds, is poised for its second-largest weekly withdrawal ever — a week after reeling in record cash. Both are among the market’s most-crowded trades. Both keep paying off. Yet risk-minded investors are cashing out.
Oil and chipmakers have been the holdouts. They survived the AI-disruption scare that ripped through software and credit in February. They continued to draw money during March’s macro reshuffle following the US-Iran conflict, which pushed the dollar higher and knocked down international stocks — inverting most of the big calls traders carried into 2026. Those positions are starting to unwind.
Zig-zags happen in markets, and most mean little. The two forces — AI and war — are leaving imprints across Wall Street, and neither has resolved. Investors are rethinking which businesses compound and which get hollowed out by AI innovations. And the war is pushing asset correlations out of whack.
Against that backdrop, the case for oil and chipmakers has been clear. Chipmakers have been riding the AI capex wave. Oil has benefited from supply fears after the Strait of Hormuz closure. Both have been drawing money for months.
Now, positioning is doing the driving. When trades get crowded, flows often shift before fundamentals do — and before prices catch up. Gold’s shock selloff in recent months was one example. The exit from oil and chips this week is another, even as both still hold onto this year’s gains. To Dan Niles, founder of Niles Investment Management, the pullback looks like rational profit-taking, not panic.
“It’s very smart that investors are looking at that and saying, ‘I think I want to exit these trades for now and wait for a better time to get involved again,’” he said. “You want to be buying when everybody else is panicking, and you want to be getting a lot more fearful when everybody else is euphoric.”
For funds sitting on big gains, locking in profits before the crowd does is good risk management. And the unwinding has yet to hurt prices. The semiconductor ETF scored a record 18-day winning streak, surging almost 50% over the stretch, while USO enjoyed a week of double-digit gains. But if there is a lesson to be learned from 2026’s markets, it’s that one-sided positions can be recipes for trouble.
When disruptions are running in parallel — AI reshaping earnings, the Iran war reshaping capital flows — market leadership is prone to fast rotations. Short bonds worked until February, aided in part by expectations for a pause in Federal Reserve easing. Dollar weakness and international stocks worked until the war.
Each call was defensible at first. But with valuations stretched and market narratives fast shifting, few trades look safe.
“You’ve got to be more convicted than ever in your long-term views and be willing to be humble with your short-term positioning,” said Ben Sullivan, chief investment officer at AE Wealth Management. “The current environment is no doubt incredibly challenging.”
The dash out of USO and SOXX comes after an otherwise banner streak across risk assets. The S&P 500 reached another record after four straight weeks of gains. Bitcoin is approaching $80,000, and day traders are warming up to the market after selling into the rallies earlier this month.
For many in the market, sentiment and positioning have become must-watch indicators to gauge direction when the fundamental picture is muddled by President Donald Trump’s disruptive policies.
Perhaps the most glaring mismatch is between stocks and bonds. The S&P 500 has reclaimed all-time highs, all but putting the Iran war behind it. The 10-year Treasury yield, by contrast, has been stuck roughly 30 basis points above its pre-war level of around 4%. To Mohit Kumar, chief economist and strategist for Europe at Jefferies, the equity rally has been a function of investors being forced out of bearish positions.
“A few weeks ago, market positioning was short risky assets. Investors trading positioning would have realized that the market wanted to rally and all one needed was some semi-good news,” he wrote in a note. “Once again, markets have favored investors who have traded on positioning, rather than investors who traded on fundamentals.”
Last week, a measure of equity positioning kept by Deutsche Bank AG posted one of the largest jumps on record. Still, relative to history, it hovered around neutral.
One particular group whose risk appetite is perking up: Small-time investors. Retail activity has increased in recent days, with trading in stocks and ETFs rising to 10% of the total volume, up from about 7% earlier this year, according to data compiled by Citigroup Inc. At Barclays Plc, the firm’s equity euphoria indicator pointed to an increase in meme-driven momentum and speculative spirits among day traders.
