Goldman Sachs: Water is WetGoldman is doing what Goldman always does... The question is whether they are being intentionally obtuse
Good morning: This is one of my favorite times of the year in Maryland. I live in a valley, so in the morning, the sun rises, and the fog starts to as well. If you’ve ever seen the film Michael Clayton, the opening and ending scenes align where he’s in a field with three horses - a premonition from his son’s book. It’s a stunning view of New York horse country… Well, I have the Maryland version. From my window, I see the traffic, the horses, and the leafless trees start to emerge from a dense white fog that evaporates as the sun begins to rise. It’s a signal that spring is right around the corner… Let’s dive into the morning recap… Goldman Sachs is the story right now… The investment bank - which is always worried about your well-being - said that the combination of high valuations and concentration has preceded previous market downturns. In a research note predicting that the S&P 500 would rise to 7,600, but warned about the metrics. The S&P 500 is trading at 22 times next year’s earnings… which aligns with the “nosebleed altitude” we hit in 2021. That would be just below the all-time record set during the 2000 dot-com circus. They’re suggesting that if earnings come in soft, this market doesn’t correct… it drops a manhole cover on your foot. Then, it’s the fact that 10 companies now make up 41% of the entire index, and they produce 32% of all S&P 500 earnings. In 2025, those ten names carried more than half of the market’s total return. Now, I keep explaining WHY all of this is happening in the markets. Liquidity has remained strong for three years… momentum has recovered from ongoing actions by the Treasury, Federal Reserve, and other central banks. I am sitting here watching Squawk Box while a person at Partners Group attempts to justify her exact same prediction at 7,600… With no real explanation outside of “earnings growth,” “AI,” and “producitivity.” As if any of that really matters… And then there’s a lot of chatter about “affordability”… I can’t listen to most of this anymore without realizing that it’s just a bunch of marketing terms with very little focus on the core things that matter. What matters: The plumbing. Yes, valuations are stretched, and concentration is high… But the fact remains that the Fed is doing all it can to hold the line in Repo… Japan is printing… China is printing… and liquidity is holding. I couldn’t tell you what is going to happen by June 2026 now that we’re (checks notes) talking about invading…Greenland? Goldman’s insight is valuable because those valuations and concentrations remain all in one single chart that will tell us a lot if something goes wrong. The FNGD… If you need to know about concentration, valuations, and whether the market goes, a few things will happen. Our tech sector signal will go red… our S&P 500 reading will go red… and the FNGD will… break out above its 50-day EMA.
Just a reminder: the third factor is still happening due to shakiness in repo and emerging questions about the European shadow banking system. Remember, those AI stocks are used as collateral in repo markets, and if forced selling or deleveraging happens, that Goldman report is useful information. Joe Kernan asked this analyst - When does this market go down?” She said, “When AI disappoints…” No… It’s when liquidity dries up, the refinancing mechanism worsens, rates rise, and repo shows stress in the shadow banking system. That’s what happened in 2022, when the markets rolled over after the liquidity peak in November 2021. Does anyone understand over at CNBC understand what has happened since 2008? I will gladly run an editorial meeting. If not. No worries. I watch mainstream financial media - and I could not feel more confident moving forward in what we do and how we do it… Versus whatever the hell is masquerading as modern analysis these days. Let’s get to the morning recap…... Continue reading this post for free in the Substack app
|
Post a Comment
Post a Comment