Goldman Sachs(US:GS) Hua Er Jie Jian Wen·2025-09-10 08:09Core Viewpoint - The current bullish trend in the U.S. stock market, particularly the Nasdaq reaching historical highs, may be nearing its end as underlying economic risks are underestimated by investors [1][3]. Market Dynamics - The Nasdaq 100 index has shown a compound annual growth rate of 14.25% over the past 40 years, significantly outperforming the broader market [1]. - Investors are increasingly reliant on expectations of Federal Reserve rate cuts, despite recent technical rebounds in the VIX volatility index and widening credit spreads indicating rising underlying risks [1][5]. Structural Risks - Despite healthy private sector balance sheets and no significant decline in corporate earnings, demand has been overdrawn, leading to weakened economic growth momentum [4]. - The labor market is a critical variable, with a historical low of 44.9% probability for unemployed individuals to find new jobs, indicating a potential underestimation of risks associated with job losses [4][5]. Policy Environment - The market's dependence on Federal Reserve easing is concerning, especially if inflation remains high, limiting the scope for rate cuts [5][6]. - Fiscal policy is constrained by high debt levels and interest burdens, reducing the potential for further stimulus [5]. Technical Analysis - The market is currently in a high-level consolidation phase, with the formation of a market top potentially taking several months [9]. - The performance divergence between cyclical and defensive sectors is notable, with the largest discrepancy in two years observed between TIPS yields and sector performances [7]. Investment Strategy - Monitoring upcoming CPI data is crucial; a higher-than-expected CPI could push the S&P 500 to 6200 points, while a weaker CPI may present buying opportunities at a 4.25% yield on 10-year Treasuries [10]. - Short-term strategies may include hedging with VIX longs and S&P 500 shorts, particularly around key inflation data releases [10].