Goldman Sachs Partner: Summer is over, and the market focus is on the "bond market storm," while the fear index for U.S. stocks has fallen to its lowest point during Trump's term.

The U.S. bond market and stock market are telling two distinctly different stories. During the Labor Day holiday, the global bond market remained under pressureJapan's 10-year government bond yield rose to its highest level since 1996, while the U.K.'s 30-year government bond yield reached its peak since 1998. Duration assets in developed markets faced continuous selling throughout the summer. Meanwhile, the VIX index, which gauges panic in the U.S. stock market, dropped to its lowest level since Trump's second term (excluding the Christmas holiday), and the MSCI Global Index has risen by 13% this year, just shy of its all-time high. This divergence is precisely the core contradiction highlighted by Goldman Sachs partner Mark Wilson in the latest edition of his "Weekly Mash" report. He pointed out that the narrative of stock market "resilience" conceals a quietly unfolding reality: under the pressure of continuously rising yields, valuation multiples have been silently contracting, yet the market has still not adequately priced in changes to the discount rate. As students return to school and the market transitions from summer mode, Wilson has outlined the current landscape of opportunities and risks around four key themes. Federal Reserve Governor Waller has explicitly indicated that the upcoming CPI and PPI data to be released next week is crucial. This "cognitive dissonance" between the bond market and stock market may continue to test investors' judgments until the inflation data is released. Paradox 1: The momentum factor has "halved," yet the market narrative remains unchanged This summer, there has been a profound shift in the internal structure of the market, but this change has not received the attention it deserves. Wilson notes that Goldman's tracked "high beta momentum" portfolio has retreated nearly 50% from its peak at the end of June, with cumulative returns turning negative for the year. The rotation in July was sufficiently discussed, but the second wave of declines in August has received almost no attentionhe believes that the risk transfer and digestion pressure from July have weighed on prices in August, which should not be surprising. Of greater concern is the change in the internal composition of the momentum factor: software stocks have entered the bullish territory over a three-month horizon but remain in bearish territory over a twelve-month horizon. Wilson clearly states that one should not expect the leading sectors of the first half of the year to dominate the market again in the second half. Paradox 2: Yields reach intergenerational highs, yet the valuations in the stock market are bleeding beneath the "resilience" The continued rise in global yields is one of the most underestimated risks in this market cycle. Wilson admits that, in the face of sharply rising global yields, the stock market has shown considerable resilience; however, he also points out that during this period of "resilience," valuation multiples have actually contracted, and the market has not fully rewarded the "remarkably consistent" strong profit performance this year. He attributes the current pressure in the bond market to two independent lines of thought: first, the resurgence of geopolitical risk premium in August has led to a repricing of oil and gas prices due to conflicts in the Persian Gulf and the escalation of the Russia-Ukraine situation; second, the AI investment wave brings a dual impactlarge tech companies have begun to support capital expenditures through debt financing, exacerbating capital competition while also creating price pressures in certain economic sectors. Wilson's conclusion is direct and clear: "Once the bond sell-off stops and yields stabilize, it will be an unconditional positive for the stock market. And that is precisely the clearest signal at presentbecause the sell-off has not yet stopped." Paradox 3: Rising geopolitical risks, yet European defense stocks have underperformed fundamentals for a whole year Typically, rising geopolitical risks should directly benefit the defense sector, but the reality has been quite the opposite. Wilson points out that there has been a 25% divergence between the stock price performance and earnings trend of European defense stocks over the past 12 monthsearnings have remained strong, but stock prices have lagged. The current level of holdings in this sector is at a two-year low, with Goldmans prime brokerage data showing that the long-short ratio has just rebounded from a local low. He attributes the initial valuation discount to the substitution effect of "new technology" over "old technology," but notes that both are currently under pressure, making this explanation no longer tenable. On the political calendar front, Wilson urges investors to pay attention to the recent elections in Saxony, Sweden, and the rising possibility of Marine Le Pen winning the French presidential election next year. He clearly states his inclination to increase holdings in European defense stocks at this juncture. Paradox 4: The AI narrative shifts from "selling shovelers" to "using shovelers," with CyberCab being the most underestimated signal The AI investment theme is undergoing an important narrative switch. Wilson notes that the market is shifting from beneficiaries of AI capital expenditures (i.e., infrastructure level) to beneficiaries of AI use casesfrom Salesforce to Snowflake to Tesla, this trend of rotation is expected to continue. The fundamental evidences he cites include: Nvidias performance significantly exceeded expectations and raised guidance, Dell delivered the same strong signals, OpenAI's Astra model received positive evaluations, and Nvidia's acquisition of Hugging Face reveals a parallel development pattern of open and closed ecosystems. Wilson highlights the progress of Teslas CyberCab, stating it is one of the most impressive advancements in AI functionality he has seen, yet also one of the least discussed evidences. He cites data showing that, as of July 22, during Tesla's earnings call, CyberCab had accumulated a mileage of 380,000 miles, and shortly thereafter surpassed one million miles. On a longer-term dimension, Wilson mentions that Goldman has raised its 2030 shipment forecast for humanoid Siasun Robot & Automation sixfold and has begun assessing its operational impactusing Amazon as an example, automation is expected to deliver approximately $72 billion in cost savings and a 240 basis point increase in EBIT profit margins. Overall, Wilson's core judgment is that the market, having experienced a summer of "indigestion of the first half narrative," has completed the rotation, undergone valuation contraction, and is now seeking a new narrative that can be coherent in a high-yield environment. However, he warns that the intergenerational highs in Japanese and British bond yields are not an "atmosphere" that can be ignored but rather indicative of higher discount rates, intensifying capital competition from AI debt financing, and the coexistence of "resilient growth" and "perfect pricing"until one day the reality reminds us they will no longer coexist. The low level of the VIX may simply indicate that the market has not yet found sufficient reasons to panic, rather than that the risks have dissipated. This article is sourced from "Wall Street Journal," by Zhao Ying, edited by GMTEight: Wang Qiujia.