Underneath the Calm of U.S. Stock Indices: Goldman Sachs Partners Reveal Four Major Market Drivers

The S&P 500 Index is showing limited volatility on the surface, but the internal market may be experiencing a dramatic revaluation. Goldman Sachs partner Bobby Molavi noted in his latest market commentary that AI regulatory controversies, oil prices breaking through $100, 10-year U.S. Treasury yields exceeding 5%, and expectations of further Federal Reserve rate hikes are all simultaneously disrupting the market, resulting in a clear decoupling between index performance and internal structure.

Molavi stated that while the S&P 500 Index is still hovering around 7600, close to early June levels, there have been sharp changes in factor rotation, regional market fluctuations, and the price gap between different investment themes. The market is behaving more like it's undergoing a portfolio reset, rather than a normal style rotation. Some Asian markets have already begun to show signs of “overly optimistic resets”, and the performance discrepancies between software and semiconductors, as well as between short-term and long-term momentum, are further widening.

A prominent feature of the current market is that positions are already relatively clean, yet volatility at the factor level is becoming even more pronounced. Previously leading sectors have been sold off, with capital flowing into software and defensive areas. The momentum factor has seen one of the most dramatic one-day reversals in the past five years, leading to increased internal market fragility.

AI Regulatory Disputes Intensify, But Capital Expenditure Logic Remains Unchanged

Recently, debates around the development speed of advanced AI models and the boundaries of their regulation have intensified, stoking market concerns over possible tighter policy constraints on the AI industry. These controversies have, on one hand, made AI regulation a new policy focus, while on the other hand, sparked discussions about whether leading companies might use regulation to raise entry barriers.

However, these regulatory disputes have not changed the core logic of AI capital expenditure. Recent corporate surveys show that AI is already being used to shorten product design cycles, promote job automation, and improve productivity. The market’s focus is also shifting from infrastructure investment towards AI commercialization and actual returns.

As computing power supply gradually increases, the scarcity premium previously attached to chips and computing resources is narrowing, and the software sector is drawing renewed capital attention. The core logic behind AI trading is shifting from “how much is invested” to “how much return can be generated.”

Oil Surpasses $100, Supply Risks Extend Into Winter

Oil prices have now firmly surpassed $100, with risk of rising further towards $110. Recent attacks on Middle Eastern energy infrastructure have affected key pipelines that bypass the Strait of Hormuz, exposing global crude oil supplies to further shocks.

At the same time, global oil inventories remain low, and the slowdown in shipping through the Strait of Hormuz and its key pipelines will weaken some buyers’ ability to release inventory into the market. As tanker shipping costs, war risk premiums, and insurance expenses simultaneously rise, the shock to crude supply could be further amplified via transportation and inventory channels.

With the winter peak demand season approaching and consumers already facing high living costs, a continued rise in oil prices could further transmit energy and transportation costs to end prices, increasing inflationary pressure.

US Treasury Yields Break 5%, Refinancing Pressure Mounts

The yield on the US 10-year Treasury recently surpassed the critical 5% threshold for the first time since 2007. Inflation pressure, economic resilience, fiscal deficits, changing investor structure, and large-scale bond issuance are all jointly driving global bond yields higher.

US fiscal authorities previously attempted to improve market liquidity and ease yield pressures through buyback operations, but with limited success. Meanwhile, US Treasuries are facing substantial rollover demand: of the roughly $7 trillion in short-term Treasury bills, about $6.1 trillion will mature within the next year, and there will still be approximately $4 trillion and $3.5 trillion to refinance in 2027 and 2028, respectively.

Against the backdrop of high fiscal deficits and continuously increasing bond supply, refinancing needs may continue to be a key source of disruption on the supply side of the bond market.

Inflation and Employment Data Put the Fed in a Dilemma

Global central banks are facing an increasingly complex policy environment: economic growth requires policy support, but high energy prices and inflationary pressure are limiting policy easing. Persistently high or even tighter interest rates could also increase the debt servicing burdens of governments, businesses, and households.

Recent US economic data have further increased policy uncertainty. PPI rose 5.4% year-on-year, 162,000 new jobs were added in August, previous months’ jobs numbers were revised upwards, and CPI is up 3.4% year-on-year—still well above the Fed’s 2% target. Meanwhile, the recent rise in oil prices has not yet been fully reflected in future inflation data.

Against this backdrop, there remains disagreement in the market regarding the Fed’s policy path. The FOMC meeting and its policy guidance will be key catalysts impacting asset prices in the near term.

Momentum Factor Sharp Reversal, Market Internals Continue to Reorganize

In addition to macro factors, internal market factor reorganization also warrants attention. Overall positions have clearly fallen compared to before, with total exposure, net exposure, long-short ratios, leverage, and concentration all declining, and the size of leveraged ETFs also shrinking.

However, at the same time, momentum factors are undergoing rare and dramatic volatility in recent years. There has been an approximately 11% relative volatility between three-month and twelve-month momentum portfolios, while the one-day underperformance of long-term momentum reached its largest in nearly five years.

Previously dominant AI-related trades have been sold off, while software and defensive sectors have rebounded, and short-term capital is pivoting toward energy, quality, and defensive directions. The previously tight correlation between the momentum factor and the AI theme is weakening, accelerating the reshuffling of internal market trading logic.