Goldman Sachs: U.S. stocks enter "Dangerous August," the market overlooks these "good news" from European stocks

For U.S. stock investors, late summer to early autumn often signifies a period of "difficult times."

A recent report from Goldman Sachs clearly points out this historical challenge. Strategist Scott Rubner emphasizes that the period from the end of July to mid-September is a time of extremely challenging market returns.

Data shows that over the past thirty years, the average return of the S&P 500 index in August and September ranks at the bottom among all months. This seasonal weakness is commonly referred to by market participants as the "August Curse" or the "September Effect." The headwinds created by historical patterns are forming, and any potential negative catalysts could be amplified during this fragile period, leading to a market correction.

"From now until mid-September, seasonal factors are no longer your friend," analysts bluntly point out, "so it's hard to find reasons to be overly bullish." The firm's clients have experienced their worst-performing third month on record.

However, Goldman Sachs also emphasizes that the market may be overly focused on seasonal headwinds in the U.S. while overlooking the positive changes emerging in European stock markets. They believe there are a series of "good news" in Europe that have not been fully priced in by the market.

The "Speculative Frenzy" and "Economic Chill" in U.S. Stocks

In recent months, the U.S. stock market has presented an extremely unusual scene. On one hand, market leadership has returned to artificial intelligence and a few large tech stocks. According to the report, this narrow rally is accompanied by an "exceptionally fierce retail buying spree."

This frenzy is reflected in multiple dimensions:

• Retail favorites soar: A basket of popular retail stocks tracked by Goldman Sachs (GSXURFAV) has surged 50% in the past three months.

• Short sellers crushed: Meanwhile, the basket of stocks most concentrated in short positions (GSCBMSAL) has skyrocketed by 60%.

• Speculative indicators flash red: Goldman Sachs' "speculative trading indicator" has climbed to historical highs, second only to the dot-com bubble of 1998-2001 and the post-pandemic frenzy of 2020-2021.

However, beneath this speculative boom, the non-AI-related real economy is flashing warning signs of "loss of momentum."

Goldman Sachs Chief Economist Jan Hatzius points out that U.S. real personal consumption expenditures have stagnated for six months, a situation that is extremely rare during non-recession periods. At the same time, construction spending is declining at the fastest rate since 2008.

The job market is equally concerning. The latest ADP data shows a contraction in private sector employment, while the wage diffusion index indicates that the number of industries laying off workers is roughly equal to those hiring, significantly weakening overall employment growth momentum.

Don't Overlook the "Good News" in Europe

While the market's focus is on tech giants like Nvidia, positive changes in Europe have "received almost no attention." Goldman Sachs' European equity strategists believe there are a series of "good news" in Europe that have not been fully priced in by the market. For example:

1. Economic Outlook Upgraded: The Goldman Sachs team upgraded its GDP growth forecast for Europe this week.

2. M&A Market Warming Up: This week, the leveraged buyout of Bavarian Nordic, Brookfield's bid for Just Group, Tata Motors' interest in Iveco, and the escalating bidding war for Spectris all signify a return of M&A activity.

3. German Companies Increase Investment: An astonishing piece of news is that 60 German companies jointly announced plans to increase their capital expenditure for "Made in Germany" by €100 billion over the next three years, totaling €630 billion.

4. Stock Divergence Intensifies: The degree of stock divergence in the European market has returned to a three-year high, and interest levels in stocks outside of banks and defense have never truly recovered. This means that opportunities are increasing for active stock pickers.

As the U.S. market may face consolidation pressure due to seasonal factors and high valuations, a European market with improving fundamentals and more attractive valuations naturally becomes the focus for global asset allocators.

Additionally, the report acknowledges the resilience of the AI theme. Major tech giants have seen accelerated revenue growth in cloud, advertising, and e-commerce, demonstrating strong fundamentals. "From the flow of investment funds, corporate commentary, government policies, and price trends, the broad AI theme is far from over," wrote Goldman Sachs analysts.

Looking ahead, Goldman Sachs maintains its forecast for the Federal Reserve, expecting three rate cuts this year, in September, October, and December, and anticipates a decline in yields and a weakening dollar.

The report concludes with an interesting historical observation: "In the past 35 years, periods of sharp increases in other speculative trading activities have often preceded above-average returns for the S&P 500 index in the following 3 months, 6 months, and 12 months." This may suggest that despite short-term market adjustment pressures and economic uncertainties, the current speculative frenzy, viewed from another historical dimension, may not be entirely negative.

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