A senior strategist at Goldman Sachs says investors crowded into the AI trade may face an unexpected outcome by year-end.
In a new episode of The Markets podcast, Shawn Tuteja, who oversees ETF and custom baskets volatility trading within Goldman Sachs Global Banking & Markets, says clients remain heavily bullish on AI beneficiaries and semiconductors while selling large swaths of old-economy and consumer-linked stocks.
“Our clients love AI, and they love derivatives of AI. So think semiconductors, think AI power companies. But as they continue to buy these companies, as they break out to all-time highs, they’re selling other sectors against it.”
He says the long-AI-short-everything-else structure has created a setup where investors expect the rally to continue.
“That’s why the net positioning is only maybe a seven out of 10. The sectors they’re selling a lot are energy, healthcare and anything related to the consumer or the economy.”
Tuteja called out the risk that the next leg higher in equities could come from the areas where clients are most underweight, rather than the technology names that led the market through 2024 – 2025.
“Effectively, you have this setup where everyone thinks the market’s gonna go higher, but I think the real pain trade for a lot of our clients is that if the market goes higher, but it’s not led by AI and the AI complex, rather if it’s led by other sectors of the market.”
Seasonal momentum supports the case for continued gains, he says, citing historical patterns when the S&P 500 has already posted strong performance heading into November.
“If you look at times when the S&P 500 was up at least 15% on the year by the end of October, which it currently is, there have been four or five other times in the last 30 years that that’s happened. And every other time that that’s happened, the market has finished higher into year-end.”
Tuteja adds that a broadening of leadership may be necessary for a more explosive move, suggesting Big Tech alone will not be enough to carry the tape if a blow-off top develops.
“I think it can’t just be led by Mag 7, and it can’t just be led by AI. I think that there needs to be something compelling for our client base and for investors to say the broader economy and the consumer is doing better. And so if that’s the case, then sure, I think that there’s room for upside, but I think it’ll be led by some of these sectors that I just mentioned that clients are short right now.”
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