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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.
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- 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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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific's leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.