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Key Takeaways
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Goldman Sachs analysts raised their year-end S&P 500 price target in a note this week, but warned risks to the bull market are growing.
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Goldman sees some evidence of excessive speculation in today’s market and mounting risk that high fuel prices slow growth and tighten financial conditions, a combination known to derail market rallies.
The stock-market rally is charging full speed ahead—but some “yellow flags” have begun to pop up, according to Goldman Sachs.
“The conditions that have marked the ends of high-valuation, high-concentration bull markets in the past remain mostly absent today, although some of those conditions appear to be drawing closer,” wrote a team of Goldman Sachs equity analysts in a Tuesday note.
The S&P 500 has risen for eight consecutive weeks due in large part to a blistering rally in shares of chip makers and other AI infrastructure beneficiaries like optical networking suppliers. The index rose to a fresh record on Thursday, putting it on pace to notch a ninth straight winning week. That would mark the index’s longest streak since 2023.
Two dynamics typically spell the end of rip-roaring bull markets like the one we’re in now, according to Goldman.
Why This Is Important
Investors have largely shaken off concerns about the war in Iran to focus on the meteoric growth of AI data center suppliers. But the rally of the last two months has set a high bar for the market’s best-performing stocks at a time when the full effects of the largest oil supply shock in history remain highly uncertain.
First, Goldman wrote, “an excess of speculative risk-taking” drives stock valuations unsustainably high and makes the market more vulnerable to surprises. Second, “a deteriorating fundamental backdrop” that usually involves interest rates rising and growth declining.
Goldman sees some evidence of excessive speculation in the market today, including “recent surges in investor risk appetite and the Momentum factor.” (Factor investing is a strategy of selecting stocks based on certain broad characteristics, with momentum—usually meaning relative price appreciation—a popular one.)
The relentless momentum of the AI trade is most evident in skyrocketing chip and memory stocks. Memory chip maker Micron (MU) saw its market value top $1 trillion on Tuesday after shares soared nearly 20% absent much of a catalyst. It’s one of five issues in the S&P 500 that have at least tripled in value since the start of the year, the others being Sandisk (SNDK), Intel (INTC), Seagate Technology (STX), and Western Digital (WDC).
