Goldman is nervous about the rally.
- Starting with momentum, Goldman notes that this factor has surged by 25% YTD, but the rally has been interspersed with a series of sharp drawdowns, as stocks are increasingly led by just a handful of names and all it takes is a modest wobble for the house of cards to collapse. The S&P 500 has rallied by 14% from its low in late March and now trades at a new record high. However, the median S&P 500 constituent remains 13% below its respective high. That divergence, which has taken place alongside the Momentum rally, has pushed market breadth to its lowest level since the Dot-Com Bubble.
- By now even the hotdog vendor knows that the narrow breadth rally has been driven primarily by stocks tied to the AI infrastructure build-out, mirroring the narrow breadth of recent earnings revisions. The SOX Semiconductor Index has jumped by 30% since the start of the Iran War and the Magnificent 7 have collectively risen by 10%, while the equal-weight S&P 500 has declined by 1% over that period.
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