GS Tony Pasquariello Markets and Macro Aug 1

a few (very short) odds-and-ends from the week:

1. US mega cap tech. this week’s podcast is with the great Eric Sheridan: link. in 12 minutes we check down the big takeaways from Q2 earnings. if there’s a throughline here, the conversation has a constructive bias towards the hyperscalers.

2. hyperscaler debt. one of the big stories last week was the widening of credit spreads on the hyperscalers; our index of 30-year paper, ticker GSUCHS30, widened 18 bps. on the follow this week, it retraced about half of that move. I suspect this story will ebb-and-flow for a while longer within the context of the broader AI capex narrative.

3. a follow-on point. one of the best things that I read this week was Amanda Lynam’s take: link. here’s the sequence of expected supply, constructed from a top-down perspective: IG-related issuance directly from the hyperscalers (i.e. not the data centers) was $108bn in 2025 ... it’s $194bn so far this year ... we expect that number to be $250bn for FY’26 ... followed by another $400bn in 2027. for a related (and net positive) take on all of this, enter a blackbelt: link.

4. the volatility of momentum. a short chronology of our flagship basket (GSPRHIMO): up six consecutive months, good for a 57% YTD return through June ... to down 30% in July. say what you will of market seasonals, but this basket hasn’t seen a positive July since 2020. again, I suspect that high realized volatility in this factor will be with us for a while longer. for some additional reading: link.

5. Korea. speaking of momentum, this market continues to be the brightest and most shining example. consider this: Friday was the best single day in the history of KOSPI (+18%), yet July was the worst month since the GFC. here’s another way to frame it: the average monthly move in KOSPI this year is a whopping 21%. so, while there’s a lot to be said for a market that generates enormous torque -- and trades on 4.7x P/E, aka the lowest since 2001 -- it’s certainly not for the faint of heart (link).

6. flow-of-funds, positioning. if the levered community dominated the storyline in recent weeks, I expect that US corporates will be the dominant hand throughout the month ahead. which is to say: we’re past the core of the reporting period, and August is typically the single most active month for stock buybacks. I’m also very curious to see how the US retail investors respond to the recent bout of volatility -- my expectation is they will remain on the bid in fund form (link), but with less ferocity (and leverage) than we saw in Q2.

7. hedge funds. amidst all of the factor volatility and wildness of recent weeks, the YTD scoreboard is still healthy. which is to say, GS PB data has both fundamental and systematic long / short funds up around 12% YTD. if you’re curious where high level positioning metrics end the week, here’s the 1-year lookback for our full PB book: gross exposure = 51st percentile; net exposure = 37th percentile (link).

8. energy stocks. I find it a little interesting that this has been the single best sector of the market -- up 33% YTD, on a great Sharpe ratio -- and folks barely talk about it. given that GS PB reports seven straight weeks of net buying, it appears this is a show-don’t-tell dynamic.

9. bonds and stocks. given the move in US Treasuries this week, it’s worth updating our rule of thumb on when rates tend to impinge on equities. a 2.0 standard deviation move in US nominal 10-year note

yields -- in one month’s time -- is when stocks generally feel the pinch. to translate that, enter Ben Snider: “so the level depends on how quickly we get there. in the middle of July we were trading around 4.55%, so a little above 5% by mid-August would follow the typical pattern. in real yields (TIPS) -- where the relationship with equities is a little more severe -- that near-term level to watch is about 2.75%.”

10. three charts for the road:

i. as Vincent Lin in GS PB pointed out to me, this week saw the second largest de-grossing activity of the past decade (second only to the meme bit in late January of 2021):

ii. this is a simple basket of the five hyperscalers. in the context of a tricky year and not much sponsorship, it notably rallied 11%…