Goldman Sachs Says Capital Spending Is Powering the Bull Market

The rally in U.S. equities, led by chipmakers, added over $8 trillion to the S&P 500’s market value in the past three months. Fresh data suggesting labor-market strength and firmer consumer sentiment has reinforced confidence in corporate earnings and economic resilience. Chipmakers extended their rebound from war-driven lows, supporting continued momentum into the quarter’s close.

Analysis

The first-order winner is still the high-beta growth complex, but the cleaner expression is semis versus defensives. If labor and consumer data stay firm, the market stops paying for recession protection and starts paying for earnings durability, which tends to lift SMH/SOXX more than the broad index because the group has the highest operating leverage to a re-acceleration narrative and the most crowded positioning to be re-rated.

Second-order, stronger macro data is a mixed blessing for the rest of the tape: it supports revenue for cyclicals and financials, but it also delays any rate relief, which caps multiple expansion in long-duration software and small caps. Over 1-3 months, the key catalyst is whether this is breadth improvement or just index-level momentum; if breadth widens into industrials, materials, and banks, the rally can extend, but if it remains narrow, the move is vulnerable to a rates shock.

The consensus is likely underestimating how much of this advance is now flow-driven rather than fundamentals-driven after an $8T move in market cap. That makes the market more sensitive to a single soft jobs or sentiment print than usual: a modest slowdown could trigger de-risking, while continued strength could force systematic and discretionary underexposure to chase higher. The falsifier for the bullish cyclical read is a turn higher in real rates or a pair of weaker labor/consumer prints that shifts the story from soft landing to late-cycle tightening.

Key Decisions for Investors

• Over the next 2-4 weeks, accumulate SMH/SOXX on pullbacks rather than chasing strength; use a 3-6 month horizon and size for a stop if 10Y real yields trend materially higher and semis fail to hold relative highs.
• Pair long SMH vs short XLU on a 1-3 month view: if growth stays resilient, semis should outperform defensives by a mid-single-digit to low-double-digit spread; cut the trade if a weak macro print reverses rate expectations.
• For a cleaner cyclical expression, long XLI or XLB against XLP over the next quarter; the trade works if consumer/labor data translates into revenue upside rather than just sentiment, and fails if breadth stays narrow.
• Avoid chasing long-duration software here; prefer a tactical hedge via QQQ put spreads or underweight in names with the highest rate sensitivity until the market proves it can absorb higher-for-longer rates.
• Set an alert around the next labor/consumer releases: a downside surprise is the near-term catalyst that could unwind momentum and create a better entry point for risk; if prints remain firm, keep the risk-on rotation on.