GS Tony Pasquariello markets and macro Aug 4

ten quick points as I hit the ground in SF for two days in the field:

1. July brought a 20% rip in oil, a 32 bps selloff in US 30-year bonds and a searing backup in consensus positions. despite all of that, S&P didn’t budge on the month. in the days since, Old Ironsides is doing what it does best, fighting through challenges (and, with any luck this afternoon, will take out the closing highs).

2. I’m NOT saying that the trading environment has been easy. the parabolic days of Q2 are well behind us, and the market has rightly been asking very hard questions on AI capex. with that said, the reporting period serves as a fundamental reminder that certain US mega cap tech names can still deliver a blast of upside convexity.

3. to put a line under it, Q2 earnings have been terrific, as detailed in this US portfolio strategy note: link. away from the bright-and-shining headlines (+46% y/y EPS growth, or +28% ex-privates), I’d underline two other facts: (1) this will be the SEVENTH consecutive quarter of double digit EPS growth; (2) while the tech space still holds immense sway, the median stock has grown earnings a very respectable 12% y/y.

4. on the technical side of the ledger, the start of every week brings a flood of emails with all manner of positioning and sentiment gauges. the latest batch was over the place, reflective of some long-standing challenges (the US equity market is huge and the investor base is very fragmented), as well as some local volatility (again, we just witnessed the highest factor volatility on record, outside of recession).

5. my process for estimating the balance of flows and positions involves an alchemy of franchise data, client engagement and pattern recognition. specific to the trading community, on my standard scale of -10 to +10, I’d put current length at +6. for context, I’d argue the low point this year was -4 in late March, and the high point was +9 in late June.

6. so, the market has edged back to the highs, and positioning is lighter than it was the last time S&P traded over 7600. in addition, my expectation is that flows will skew net positive in the month of August (underlying retail demand for equity funds is healthy and stock buybacks should pick up). on net, the technical picture is pretty good, and it notably features less leverage than was deployed in Q2.

7. the Fed. I understand that market participants are struggling to figure out the tactics of execution to tame core inflation. with that said, for all of the criticism from market pundits, I’ll simply point out that our US financial conditions index is at an easier point today than it was before the FOMC meeting.

8. in addition, one can argue that a broad trend of disinflation should take shape as 2026 becomes 2027. this argument is largely rooted in the lapping of tariffs and an absence of

pressure in wages and housing (full framework available). looking ahead, mark your calendar for the Jackson Hole symposium, August 27-29th (which, lest it be said, is not exactly the apogee of summer liquidity).

9. what’s the big risk to equities? I suspect the bond market poses the most clear-and- present danger to stocks. last week’s move in the back end reminded me of late 2023, when the long bond went from 4.00% in late July to 5.10% by mid-October, and stuck a knife in NDX for those three months. given the prior few paragraphs, dislocation is NOT my central view, yet I tend to think the broad direction of travel is steeper curves and intermittent flareups around global debt loads (which has been the pattern of recent years).

10. taking stock of everything, my bottom line on the market remains the same: the foundation of US equities is solid. why? the economy is performing well enough, earnings are great, technicals are turning more positive and $1tr of AI capex is flowing. I’m not saying that it’s an easy trading environment, and I’m not saying that risk / reward is hugely compelling, but the big dynamics in the game support a primary trend that is still clearly higher. taker of feedback, as always.