U.S. stocks achieve new highs? Goldman Sachs analyzes the resilience of the market, focusing on these key points for the second half of the year

According to the Zhitong Finance APP, last week, when the initial signs of weakness in the U.S. labor data emerged, many believed this would mark a turning point in the sentiment of the U.S. stock market. However, just a few days later, the S&P 500 index not only regained its losses, but the Nasdaq 100 index quietly reached a new all-time high. Goldman Sachs' global investment research department's macro analysts recently stated that despite various market fluctuations, the core strategy remains effective: long U.S. stocks (focusing on technology stocks), long value storage assets (gold/silver/bitcoin), moderately short the dollar, and global steepening yield curve trades.

1. U.S. Stock Market Narrative

When I walked into the office last Monday, I expected the dominant topic in the market would be the newly emerging signs of weakness in the U.S. labor market.

But by the weekend, it was clear that the market was not significantly affected, and the non-farm payroll report did not change the risk appetite.

I am not saying the market was stable; in fact, it felt more like a tug-of-war, with each day bringing its own story — but the data speaks for itself.

That is to say: the S&P 500 index regained all its losses from last week, and the Nasdaq 100 index set a new all-time high.

In hindsight, I propose three hypotheses for this resilience:

i. This week (referring to the week ending August 10, the same below) saw new AI stimulus factors (for example, Palantir rose 21% throughout).

ii. Although speculative demand is weakening, broader capital flows remain healthy... Actual economic and corporate buying activities are very active.

iii. This week reminds us of an eternal truth: while economic cycles are important, the stock market is not the economy itself.

2. Market Framework

From a technical perspective, the overall outlook remains positive, but after a significant increase in risk assets in the trading community, the next steps will be more challenging.

From a fundamental perspective, the current tension can be described as follows: AI spending has exceeded the highest expectations — however, since the first quarter, employment growth has significantly declined.

Thus, the market trend is as observed: volatile, with each week resembling an independent ecosystem; the risk-reward dynamics are undoubtedly erratic, but the bulls still hold the advantage.

Considering all these factors, I find it hard to have much confidence in the short-term risk balance, but my expectation is that August will see more consolidation, and the technical situation in September will be more challenging, but I believe the main trend in the second half of 2025 will still be upward.

Therefore, my view remains the same as it was two weeks ago: go long and hedge (Gamma costs have decreased again; this can be seen as the cost of sleeping in August).

Additionally, closely monitor the most important sectors — U.S. technology stocks.

Finally, as detailed in point 13 below, a series of balanced macro trading combinations still maintain their value amidst various local fluctuations.

3. 14 Key Points and 6 Charts

U.S. Growth. Following the shocking non-farm payroll report, the biggest question is the potential health of the U.S. labor market. There is little data available for analysis this week: initial jobless claims reports are mixed, while the ISM services index is disappointing, leading us to track a GDP expectation of 1.2% for the third quarter. Looking ahead to next year — the stock market seems to have priced in about a 1% slowdown in growth... However, without denying the recent datasets, if our judgment about the economy returning to trend growth is correct, these localized concerns should gradually fade.

Federal Reserve. As market participants wonder when the Federal Open Market Committee will abandon its tightening policy, this week's column is written by someone who has worked inside the Federal Reserve for six years and is quite insightful (content omitted).

Capital Flows / Positioning. The driving force behind capital flows is weakening, as systematic trading firms have heavily bought global index futures over the past few months, and this work is largely complete. If significant volatility occurs, the current asymmetry tends to be downward. Discretionary investors have also increased long positions, and I estimate they are currently at +7, although retail investors are still net buyers, their demand intensity has weakened in recent weeks. Therefore, alongside active real funds, the current responsibility falls on stock buybacks to support the market in August.

Tariffs. August 1st and 7th have passed without significant pressure on the market. I have a contradiction in my mind: on one hand, broad tariff policies will persist, and their effects are evident in both micro and macro data; on the other hand, this administration will only advance related matters to a certain extent, and the market clearly no longer sees it as an important variable. My conclusion remains unchanged: "destructive, but not catastrophic."

U.S. Technology. A recap: the earnings reports of major U.S. tech stocks in the second quarter were indeed strong. There was significant growth acceleration across various sectors (cloud computing, advertising, e-commerce, core products), and artificial intelligence continues to capture the market's imagination. Interestingly, historically, the price-to-earnings ratio of the Nasdaq 100 index has struggled to maintain above 30, and we are now approaching this level. While it may take some time or consolidation to digest this situation, considering the potential for earnings growth, I believe one should not stubbornly view tech stock valuations.

This week's AI quote, which worries me a bit (from Jan Hatzius of Goldman Sachs Global Investment Research): Recent negative media commentary on the labor market has largely focused on job displacement caused by generative artificial intelligence. Indeed, the impact of AI is becoming increasingly evident in the data. The share of tech employment peaked in November 2022 — the month ChatGPT was launched — and has fallen below long-term trends over the past year. Additionally, the unemployment rate for tech workers aged 20-30 has risen nearly 3 percentage points since early 2024, more than four times the increase in the overall unemployment rate This week's other quote on artificial intelligence, which makes me more optimistic (from Alex Karp of Palantir): We are very, very optimistic about the United States, and we have some very key and important clients internationally, including large commercial clients in Europe and government clients outside the United States, and we are proud of them. But this is an American revolution. It is led by ontology, chips, and to some extent, large language model providers.

Japan. On the anniversary of a 12% single-day plunge in the Japanese stock market, the Nikkei index reached a new high this week (and closed above 30,000 points for the first time), which could not be more fitting. Looking deeper, our shareholder reform basket performed exceptionally well: cross-shareholdings (GSCBJXHO), banks (GSCBJPBB), corporate governance winners (GSXAJSOS), and these charts are all very good (worth a look), and this broad theme should not be overlooked.

India. Over the past decade, Indian assets have performed brilliantly. During the same period, India's trade surplus with the U.S. (in nominal dollars) doubled, and its purchases of Russian oil accounted for one-third of total oil imports. I believe this series of situations highlights the current challenges — for good reasons, a large amount of capital continues to accumulate, but now it is contrary to U.S. federal policy. As the National Stock Exchange of India index declines — the region's highest P/E ratio and the largest capital outflow — my intuition is that good fundamentals will be suppressed by an increasingly deteriorating technical outlook.

Summer liquidity. In summary, the depth of the market and the ease of risk transfer are beginning to deteriorate. As a seasoned commentator aptly pointed out, this is a "sensitive and unstable" trading environment, with daily price fluctuations becoming more arbitrary, and some obvious misalignments beginning to appear (such as last week's copper prices). If it really matters, this may be something to pay attention to.

Credit market. One might think that the recent surge in newly issued corporate bonds means that the U.S. financial system still has ample credit supply. As KC O'Connor pointed out, over $35 billion in high-yield bonds entered the market in July (which was also the busiest month in history for the leveraged loan primary market), and Lotfi Karoui noted that this sector is supported by two factors: (1) revenue generation continues to stimulate demand; (2) as coupon rates continue to reset higher, more idle funds are embedded in portfolios. What particularly impressed me is that if the high-yield market's coupons are fully reinvested, they could absorb 85% of net supply by the remaining time in 2025.

A framework I agree with. From Rich Privorozhsky, I don't know where to put it, so I'll put it here: "At a top-down level, policies still favor large corporations — investment, capital expenditure incentives, deregulation, low taxes, and a loose financial environment all benefit large enterprises. This is a form of trickle-down economics. It is an excellent environment for large corporations to thrive. But consumers are under significant pressure — not in terms of wealth or balance sheets, but in terms of income. Prices are rising, real wage growth is stagnant, and tariffs are another form of taxation." The last market perspective. Despite various fluctuations in the market, one thing remains true: go long on U.S. stocks (favoring tech stocks); go long on value storage assets (gold/silver/bitcoin); short the dollar (moderate scale); and trade the steepening yield curve (globally applicable). In any given week, some parts of this combination may perform poorly (like the dollar last week, and the steepening trade this week), but as a combined holding, this strategy remains my preferred defensive measure for 2025 (note that the Nasdaq 100 index and gold performed well this week).

The best content I heard this week was Ken Burns' interview on the Joe Rogan podcast.

The bad news is: as mentioned, U.S. job growth has significantly slowed (link). It’s important to emphasize that there is a distinction between declining job growth and rising unemployment rates, but all of this is worth close attention:

(Chart Title: Monthly Potential Trend Job Growth Estimated by Goldman Sachs, Unit: Thousands)

The good news is: capital expenditure growth among the four major tech giants is significant (this is the historical and projected capital expenditure of U.S. cloud computing and hyperscale providers):

This leads to the point. Ben Snyder broke down 16 different industries, illustrating their contributions to total GDP and S&P 500 earnings. While I am concerned about the labor market situation, I am optimistic about the earnings outlook for the top three, reiterating that the stock market is not the economy:

(Chart: NAICS Industries, Percentage of U.S. GDP, Percentage of S&P 500 Earnings, Difference between Earnings Share and GDP Share (Percentage Points))

This is not original — just a breakdown of the performance of the "seven tech giants" so far this year — but it illustrates a point made by Peter Kraljic: the first-quarter earnings reports did not change perceptions of the leaders and laggards within this group. That said, the highlight of this week was Apple's stock price soaring:

(Graph: Goldman Sachs Seven Major Tech Giants Index Analysis List Member Ranking Returns)

This illustrates the traditional 60/40 stock and bond portfolio. It is inspired by the recognition that the U.S. fixed income market—especially short-term bonds—has performed well this year. Looking back at recent history, note where this portfolio stands relative to the poor period of 2022 (or the brief outflow of U.S. assets in April):

(Graph Title: BIGPX U.S. Stocks)

The final heavy blow. This is our basket of AI leaders, including 9 influential stocks in the semiconductor/software/data center/infrastructure/power sectors, which can be seen as the "Coca-Cola of our AI basket series." For those watching at home, since the new world began, its return has reached 750%:

(Graph Title: GSTMTAIL Index)

All data sources: Goldman Sachs Global Investment Research, Bloomberg, as of August 8, 2025.

Goldman Sachs trading department reminds: Past performance does not guarantee future results. All mentions of "we" refer to the views and observations of the trading department