Goldman Trader: Why I Am Worried About Embracing The Current Market Euphoria

By Bobby Molavi, Goldman managing director and trader

All bets are off. The last couple of weeks or so has seen a broad based equity rally with participation from many communities….systematic, CTA, Long, Hedge fund. Ultimately the Fed dovishness and macro data (soft US CPI, Housing starts and retail sales) was enough to give belief to a deflationary narrative where a goldilocks paradigm of growth, high employment but softer job market, and continued consumer resilience gave credence to an unlikely Powell led soft landing having been achieved. This triggered a material sell off in 10 year yields which allowed for a multiple led relief rally starting with quality but broadening to a widespread rally that including recent soft spots like weak balance sheet, duration, small/mid cap etc. We see S&P back towards it’s 2023 highs, both S&P and Nasdaq through all time highs…and multiple names (eg Microsoft) hitting new all time highs. Frankly the re-grossing has been dramatic.

The higher dispersion environment at the micro single stock level persists. Long story short…when a stock moves these days it really really moves. We saw hello fresh trading -22%, Alstom down 15%, Burberry down 11% all on earnings and this is close on the heels of a number of other 10% plus moves in recent weeks. The macro environment also impacting sectors/themes/singles with duration/leveraged/non profitable segments of the market seeing material rallies with likes of Delivery hero up 22%, Siemens energy up 22%. The net result of this has been a 2023 where carrying gross can be challenging: you might be right in the long term, but if you’ve been early, you’ve often been stopped out of the trade before you got there.