Goldman Trader Asks: Do Rates Even Matter At All?

By Matthieu Martal, Goldman desk trader and VP

AI keeps on delivering, supporting growth & a higher rates equilibrium. This backdrop is weighing on low quality assets while growth compounder, capex beneficiaries and "fade the cuts" trades extend their lead.

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Desk views: The desk sees a path for an higher rates equilibrium, weighing on indebted names while growth compounders stay decoupled from rates. There are plenty of reasons for the market to correct: crowded positioning, stretched sentiment, hawkish risks… but AI has our back and absent a catalyst, the earnings revolution unfolding seems to enough to support equities.  In our view, underinvestment risk is real and not owning growth compounders and AI geared equities is not something managers can afford to do. Our base case remains for dips to be shallow and good buying opportunities unless driven by a re-calibration of inflation expectations. Owning gamma makes sense here too given crowding and cheap implied vols.