Regarding U.S. stocks, U.S. bonds, and the U.S. dollar, these are the 16 charts that Goldman Sachs is most focused on

Under the backdrop of inflationary pressures, concerns about debt sustainability, and the dominance of technology stocks, Tony Pasquariello, head of Goldman Sachs' hedge fund business, shared 16 charts that reveal the current market state:

The risk of inflation rebounding has been priced in by the market in advance, long-term interest rates remain high, the U.S. dollar and U.S. Treasury bonds show a significant divergence, earnings growth is dominated by tech giants, and explosive performances in sectors such as nuclear energy and defense create an investment environment that is "tricky, uneven, but full of opportunities."

The Market Has Priced in Inflation Rebound in Advance

Despite recent encouraging trends in inflation, Goldman Sachs predicts that the implementation of tariffs will cause core PCE to rise from the current 2.5% to 3.6% by the end of the year. However, the market seems to view this as a one-time event.

The 5-year forward inflation breakeven has remained within a stable range since spring 2022, indicating limited market concern about a long-term inflation recovery.

Concerns About Debt Sustainability Remain

Most of the U.S. nominal interest rate curve has remained within a similar range over the past few years, but long-term interest rates remain a focal point.

Although the 30-year U.S. interest rate has eased somewhat in recent weeks, Goldman Sachs believes that the market may continue to remain highly vigilant during each long-term Treasury auction cycle.

Significant Divergence Between the Dollar and U.S. Treasuries

A core challenge facing the dollar is that it remains relatively expensive across a range of valuation models.

This may explain why there has been a divergence between the 30-year U.S. real interest rates and the dollar's performance.

The Real Estate Sector Faces a Complex Outlook

U.S. homebuilder stocks present a confusing picture. On one hand, the risks of long-term interest rates and the weak technical supply-demand dynamics in the U.S. housing market pose threats to these stocks; on the other hand, despite historical volatility and significant declines, the long-term bullish trend remains impressive, showcasing the resilience and complexity of this sector.

Defense Stocks and Nuclear Energy Stocks Surge

Global defense stocks have performed particularly well, with Goldman Sachs' South Korea defense stock basket rising 127% year-to-date, and defense stocks in Europe and Japan also showing strong performance.

At the same time, a uranium/nuclear power themed investment basket composed of 20 global stocks has also shown a remarkable upward trend.

Tech Giants Lead Earnings Growth

Global technology companies have demonstrated exceptional earnings growth compared to non-tech companies.

In particular, the earnings growth of the Mag7 (the seven major tech giants in the U.S.) stands out compared to the other 493 companies.

The capital expenditures of tech giants have shown significant changes since the emergence of ChatGPT, with market consensus expecting this growth to continue.

The gap between AI leaders and laggards in the U.S. continues to widen. As a Goldman Sachs executive noted, AI deployment and harvesting seem to follow a trajectory of "slow, slow, slow, then suddenly accelerate."

Market Pricing: The Power of Buybacks and Systematic Liquidity

Despite a significant increase in recent issuance activities, the underlying reason is that companies are engaging in large-scale buybacks.

The amount of index futures held by the global systematic trading community is at a moderate level (5 out of 10), indicating that speculative positions no longer provide strong support as they did six weeks ago, but have not yet become a resistance.

May witnessed the largest scale of global net stock purchases in history (with a slowdown in June but still leaning towards net purchases), indicating that the initial wave of risk-taking by hedge funds has passed, but it may extend further.

Outstanding Performance of Value Storage Tools

In terms of year-to-date total return and Sharpe ratio, value storage tools (gold, Bitcoin) have performed excellently. U.S. high-yield bonds have provided a surprisingly high Sharpe ratio (and significant diversification).

It is noteworthy that the U.S. stock market has underperformed its global peers (developed markets and emerging markets), and U.S. tech stocks have also shown unexpectedly slow performance since the beginning of the year.