US stock market is tense! Goldman Sachs: Continue to be bullish on AI but be sure to hedge, low-quality sectors have deviated from fundamentals.

The strong rally and over-positioning of AI theme stocks have sparked market concerns about the potential for a significant pullback. Louis Miller, head of stock basket trading at Goldman Sachs, stated in a recent research report that while Goldman Sachs Trading Desk's bullish position on the AI theme remains unchanged, "it is necessary to protect the year-to-date gains in light of a relatively lack of catalysts." He pointed out that the current market is showing structural differentiation: the fundamentals of the AI sector are solid and should maintain a bullish exposure while deploying short-term pullback hedges; low-quality stocks are significantly detached from fundamentals in terms of valuation, providing opportunities for short selling. Miller emphasized that the rally in the AI sector is supported by strong profit adjustment data, and the fundamentals remain solid. In contrast, the broader market rally has led to a significant disconnect between valuation and fundamentals in low-quality sectors, creating attractive shorting opportunities. It is worth noting that momentum in the Asian markets has shown a significant pullback, coupled with continuous rise in global long-term interest rates, increasing inflation pressures, and rapidly rising leverage levels, the bond market is sending warning signals that investors need to be cautious about. In the current environment, position management and risk-hedging strategies have become more pressing issues than directional judgments. The strength of the AI theme continues, but crowded positions have led to a demand for defensive measures. Looking back at the recent market performance, the AI sector has significantly outperformed other areas. Miller pointed out that Goldman Sachs' U.S. AI Data Center Basket (GSTMTDAT) has outperformed the Low-Income Discretionary Consumption Basket (GSXULOWD) by nearly 100 percentage points year-to-date, with excess returns of about 20 percentage points over the past two weeks. Top long-term growth themes have doubled their returns this year, while cyclically vulnerable sectors have lagged behind. Despite short-term fluctuations, the resilience of the AI market remains evident. While the high-beta Momentum Portfolio (GSPRHIMO) experienced a 5% retreat in one day, it still recorded a positive return of about 3%... (Unfortunately, the rest of the text is too long to be translated in one go. Let me know if you'd like me to continue.)