Goldman says market is heading into a news vacuum, and there's weakness under hood

Goldman Sachs is warning of potential choppiness in tech stocks despite the Nasdaq-100's recent outperformance, citing underperformance in its TMT momentum pair and slowing leadership in names like Netflix and Spotify. The firm's technology, media, and telecom sector specialist, Peter Callahan, points to shifts such as small-caps outperforming big caps and nonprofitable tech outperforming quality, occurring as markets reprice growth and tariff expectations ahead of key data releases and trade talks.

Analysis

Despite a strong June quarter for technology stocks, evidenced by the Nasdaq-100's 13% rally outpacing the S&P 500's 7.6% gain and notable double-digit returns from Nvidia, Meta, and Tesla, Goldman Sachs signals potential headwinds. Peter Callahan, a TMT sector specialist at the firm, notes that while the Nasdaq-100 remains in a "melt-up mode"—attributed to factors like U.S.-China trade optimism, positive economic data such as improved small-business optimism, and strong results like Taiwan Semiconductor Manufacturing’s May revenue, leading to easing financial conditions—underlying choppiness is emerging. Specifically, Goldman’s TMT momentum pair, a trade involving bullish calls on tech winners and bearish calls on laggards, has declined approximately 7.5% in six days, underperforming the Nasdaq-100 by around 850 basis points. Furthermore, several leadership names including Netflix, Duolingo, Sea, Verisk Analytics, Spotify, Broadcom, MercadoLibre, and Carvana have experienced three consecutive down sessions. Concurrently, proxies for quality stocks like Costco and GE are showing signs of lagging. Callahan also observes shifts such as small-caps outperforming large-caps, cyclicals over defensives, and non-profitable tech over quality, as markets attempt to reprice growth and tariff expectations amidst an anticipated newsflow vacuum leading into quarter-end and ahead of crucial events like CPI data releases and further U.S.-China trade talks. This cautious outlook is set against a backdrop of falling U.S. stock futures, rising Treasury yields, and a weaker-than-expected Q1 revenue report from GameStop.

Key Decisions for Investors

• Investors should exercise caution regarding sustained outperformance in recently high-flying technology stocks, given Goldman Sachs's observation of underlying market choppiness and weakening momentum in specific leadership names.
• Monitor the performance of Goldman's TMT momentum pair and the identified lagging tech leaders (e.g., NFLX, SPOT, AVGO) as key indicators of a potential broader tech sector rotation or correction.
• Consider re-evaluating portfolio allocations in light of observed market shifts, such as the outperformance of small-caps versus large-caps and cyclicals versus defensives, particularly ahead of impending CPI data and U.S.-China trade developments.
• Pay close attention to upcoming inflation reports and trade negotiation outcomes, as these are highlighted as significant factors that could drive market repricing in the near term.