Goldman’s Molavi Says 60% of S&P 500 Is in Bear Market Territory

Goldman Sachs trader Bobby Molavi said 60% of S&P 500 constituents are in bear-market territory even though the index is within about 3% of its latest record high. He noted that both tech megacaps driving AI-related capex and companies receiving that spending are declining together.

Analysis

The key signal is not simply weak breadth: it is that AI-capex spenders and the companies selling into that spend are declining together. That points to a common factor—duration, crowded positioning, or skepticism about returns on AI investment—rather than a clean rotation from buyers to beneficiaries. If that correlation persists, conventional “sell the hyperscalers, buy the picks-and-shovels” hedges may offer less protection than investors expect.

A cap-weighted index near a high can conceal deteriorating participation and leave passive exposure more concentrated than headline performance suggests. But weak breadth alone is not a timing signal: mega-cap leadership can keep the index supported, and breadth can repair without an index drawdown. Near term (days), monitor whether selling broadens into index-heavy names; over 1–3 months, the key test is whether earnings commentary supports AI monetization enough to stabilize both spenders and suppliers. Over 6–18 months, sustained capex without visible returns would raise the risk of lower growth expectations and multiple compression across the AI supply chain. The thesis weakens if participation improves and AI-related guidance converts spending into durable revenue or productivity gains.

Key Decisions for Investors

• Avoid treating the index’s proximity to a high as confirmation of broad risk appetite. Track equal-weight versus cap-weight performance (RSP/SPY) and the share of constituents above their 200-day averages; worsening breadth alongside index weakness would make the concentration risk more actionable.
• No immediate outright short based on this snapshot. If breadth continues to deteriorate and the S&P 500 breaks its 50-day average, consider a defined-risk 1–3 month SPY put spread rather than an unhedged short; exit or reduce if breadth stabilizes and the index reclaims that average.
• Do not assume an AI supplier long offsets a megacap AI-spender short: their shared drawdown suggests factor correlation can rise in a de-risking episode. Revisit that pair only when earnings commentary or reported results show a clearer divergence in spending returns versus supplier demand.
• Contrarian watch: if the index holds up while breadth stops worsening, a staged RSP-over-SPY position could capture a broadening rally. Falsify the setup if equal-weight performance keeps lagging and constituent breadth makes fresh lows.