Goldman's Bordlemay Sees `Ping-Pong' Pattern for Stocks

Goldman Sachs Asset Management expects “ping-pong of volatility” to persist in US stocks even as major indexes continue to grind higher. The view is that firmer earnings have provided a cushion against rising US Treasury yields, but volatility risk remains elevated.

Analysis

The more important mechanism here is not whether stocks are up or down, but that the tape is likely to stay factor-driven rather than index-driven. Rising Treasury yields usually compress multiples first in long-duration areas, while companies with near-term earnings power can absorb that pressure; that favors quality cash generators, banks, brokers, and select cyclicals over software, unprofitable tech, and small caps that rely on cheap refinancing. In that setup, SPY can keep grinding higher even as breadth remains poor and single-name dispersion stays elevated.

That dispersion has second-order winners. Higher cross-asset volatility tends to support trading revenues, structured products, and active management flows, which is incrementally positive for GS, MS, and CBOE relative to passive-beta vehicles. It also increases the value of hedging, so option demand can stay bid even if realized index moves are modest; the market can look calm on the surface while rotations are violent underneath.

The contrarian risk is that the market may be underestimating the lagged hit from higher yields: the first impact is multiple compression, but over 1-3 quarters it starts to show up in guidance, financing costs, and buyback capacity. If earnings revisions broaden lower or the 10Y backs up further without a corresponding growth reacceleration, the current “earnings cushions yields” narrative breaks. A decisive reversal would be a dovish macro surprise or a clear decline in inflation that pulls long rates down and collapses dispersion; until then, this is more a volatility regime than a directional one.

Key Decisions for Investors

• Favor a relative-value long XLF / short QQQ position over the next 1-3 months; the thesis is that higher yields and stable earnings still support financials more than long-duration tech. Falsify if the 10Y Treasury yield rolls over materially or if megacap earnings re-accelerate breadth.
• Small starter long GS versus short QQQ or XLK into the next earnings cycle; the cleaner expression is not index direction, but continued demand for trading/volatility-linked revenue. Reduce if realized volatility compresses and the market stops rotating.
• Buy a 1-3 month SPY strangle only if implied volatility is below the recent realized range; this is a tactical way to monetize continued chop rather than pick direction. Exit if the market breaks into a sustained trend after CPI/Fed repricing.
• Overweight CBOE and, to a lesser extent, MS as a volatility regime hedge; they should benefit if the 'ping-pong' persists longer than consensus expects. Falsify on a sharp vol crush or a steady decline in options activity.
• Avoid adding to small-cap and unprofitable growth exposure until the market proves it can absorb higher discount rates; IWM and ARKK are the most obvious duration-sensitive weak links if yields stay elevated.