Goldman Trader On "Growing Risk Of A Cliff Event": A Market Reset Could Come "Suddenly & Aggressively"

By Bobby Molavi, Goldman trader and managing director

The S&P continues to hover around the 4500 level with a realized vol that paints a rosy picture but perhaps masks some of the churn and the anxiety that lives beneath the surface. Fascinating to me is to watch the tightness of index trading ranges this year. Eurostoxx spending most of the last 6 months trading in a 5% range between 4200 and 4400....every rally capped by the steepening back of the rates market and a quasi multiple cap and every sell off supported by a goldilocks narrative of inflation is defeated and rate normalisation to follow. But for now…waters remain calm.

We continue to get occasional flare ups relating to geo-political tail risks, for example market response to the China restrictions to the Apple iphone ownership. We also recently saw a minor bout of consensus and mega cap crowding pain with recent tech corrections in Apple and Nvidia contributing to a $250BN plus correction in those names alone to add fragility to an extremely narrow rally. But as last week showed, when one of the generals has a wobble, a couple of the others step up to the plate: last week it was Tesla (10% rally on an upgrade) and Amazon (highest close in 12 months). On the macro font, there has been a re-embracing of the bad news is good news mindset as consensus builds around a soft landing narrative. At the same time there seem to be wrong way moves across Oil moving higher, Nat gas, Rates higher (and for longer) and some worrying leading indicators around the consumer and consumer demand from retail/travel/consumer prints. I think the state of the consumer remains paramount and investor focus on trends and