Goldman Trading Desk: "With Stocks At All Time High, There Is An Eerie Feeling That Something Is Not Healthy Beneath The Surface"

By Bobby Molavi, Macro Trader and Managing Director at Goldman Sachs

If you had  said a few weeks ago that EU elections we’re a tail risk the market was missing I’m not sure I’d have believed you. yet here we are with the CAC ~7% lower, $250bn plus of French mkt cap gone, and anxiety around European bond market and what comes next. Things have calmed this week but nerves remain frayed. Investors focusing on the interplay of politics vs fiscal vs policy and worrying about next steps. Meanwhile over the Atlantic, last week a benign CPI print proved reassuring for the disinflation thesis, even if kick off for rate cuts later than many/most expected or hoped. We saw our analysts upgrading S&P 500 full year target to 5600 from 5200 fueled by the earnings growth of the big 5 (of the mag 7): our 30th all time high for the S&P of the year, and Nvidia taking the crown as the biggest company in the world with a market cap of $3.3 trillion. Europe may have a moment in the sun, but S&P is now up ~15% on the year and the old trade of American exceptionalism has once again come to the fore. Form is temporary, but class is permanent.  

For a year where the biggest market in the world (S&P) has hit its 30th all time highs, and where Nasdaq was up 345 bps last week (and up 7 weeks of last 8), and 6 of the 10 biggest stocks in the US hit individual all time highs, there is an elevated amount of anxiety. In some respects it is simply a reflection of the narrowness of the market and the ability for the headline to stay calm as long as a few heavyweights stay out of the macro/micro cross hairs. Some theme unwinds of late – software, defense, AI capex and Europe. Some worries around positioning and consensus trades and the risk to momentum. A broader feeling of de-gross and de-leveraging beneath the surface, and a push pull of a market sitting at or around all time highs, and yet an unnerving feeling of something not being entirely healthy beneath the surface.