Consumer confidence has hit rock bottom, and macro correlations have collapsed simultaneously. How much longer can the US stock market's solo rally last?

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The U.S. stock market is currently exhibiting a rare split: on one hand, consumer confidence has dropped to historical lows, and macro asset correlations are completely distorted; on the other hand, fueled by the AI and semiconductor rally, major indices are repeatedly hitting all-time highs. The market’s real concern is no longer whether the rally can continue, but rather how long this highly concentrated AI trend can withstand the impact from oil prices, interest rates, and crowded positions.

Boosted by rising expectations for U.S.-Iran peace talks and a surge in the semiconductor sector, U.S. stocks set new historical highs again on Tuesday. The Nasdaq 100 broke above 30,000 for the first time, and the S&P 500 rose about 0.5%; meanwhile, retreating oil prices brought down U.S. Treasury yields, while a rebound in the dollar suppressed gold and bitcoin performance.

Semiconductors remain the core driving force of this round. After UBS Group sharply raised its target price for Micron Technology, trading sentiment in memory chips quickly heated up, with the semiconductor sector rising 14% over the past five days. However, Nvidia has started to lag behind the overall semiconductor index, indicating funds are spreading from the leading name to more high-beta directions.

Goldman Sachs trader Nelson Armbrust warns that the current correlation between the S&P 500 and interest rates, gold, VIX, and oil prices has deviated from the 20-year historical average and entered extreme territory. “One end of the market will always have to give in,” he says. “The U.S. stock indices do not reflect the whole reality of the market.”

The AI theme persists, but drivers are rotating

The strongest driving force in the current stock market comes from semiconductors, especially memory chips. Goldman Sachs trader Pete Callahan notes that over the past five trading days, the semiconductor index has outperformed Nvidia by about 16.5 percentage points, marking the largest five-day advantage for SOX relative to Nvidia since 2018.

It is worth noting that this rally is not comprehensively led by big tech stocks. Big tech stocks in general are weak, with Nvidia slightly lagging behind, indicating funds are spreading from AI leaders to more high-beta trades within semiconductors. Memory chip-related tickers surged at the open, with the DRAM ETF's nominal single-day trading volume reaching about $3 billion, and Goldman Sachs’ Meme-Stocks basket also saw a significant rise.

AI remains the market’s main theme. AI semiconductors, Agentic AI, and AI data center sectors lead the market. Goldman Sachs states that the day’s momentum factor strength almost entirely comes from the long side, and the stocks with the strongest performance over the past 12 months continue to significantly outperform.

Meanwhile, the options market is also starting to show increasingly extreme structural signals. SpotGamma data indicates aggressive negative Delta flows in 0-DTE options, mainly driven by selling calls; the “volatility rising with spot rising” combo continues. This means the current rally is not a typical low-volatility risk appetite expansion, but is increasingly driven by position squeezes and options trading structures.

Consumer confidence hits bottom, but behavior diverges from sentiment

Goldman Sachs trader Chris Hussey points out that many people are puzzled: why has consumer confidence hit historical lows, yet U.S. stocks keep reaching new highs? His explanation is that what consumers “feel” and what they “actually do” are inconsistent. In other words, sentiment is pessimistic, but consumer behavior has not deteriorated in tandem.

At the same time, fiscal stimulus continues to support household cash flow. Chris Hussey mentions that tax breaks from the budget bill passed last July are improving household balance sheets and partially offsetting the pressure from rising gas prices.

U.S. macro data also shows obvious differentiation. The Chicago Fed National Activity Index rebounded sharply, the Conference Board Consumer Confidence Index beat expectations, the Dallas Fed Manufacturing Index was resilient; but the S&P CoreLogic Case-Shiller Home Price Index weakened, and the Philadelphia Fed Manufacturing Index fell short of expectations. Overall, U.S. economic data remains “slightly stronger than expected.”

This also explains the current market contradiction: consumer sentiment is extremely depressed, but economic data has not obviously weakened, and actual consumption behavior has not declined in tandem. However, the AAII bull-bear spread remains negative, showing investor sentiment has not truly turned optimistic despite new highs in the indices.

Macro correlations fail, negative Gamma worsens: Goldman Sachs warning of structural fissures in U.S. stocks

Goldman Sachs trader Nelson Armbrust warns that the current U.S. stock indices do not reflect the full reality of the market. The correlation between the S&P 500 and major macro assets has fully deviated from long-term averages: correlation with interest rates is at a 10-year low, correlation with gold is at a 10-year high, correlation with VIX is at a two-year high, and correlation with oil prices is at a 10-year low.

These are extremely rare levels over a 20-year history. In other words, U.S. stocks are still rising, but their traditional linkage with interest rates, volatility, commodities, and safe-haven assets is breaking down. For investors relying on historical correlations for asset allocation, hedging, and risk budgeting, this means model stability is deteriorating.

Meanwhile, Gamma has already turned negative. In a negative Gamma environment, the market becomes more sensitive to price swings, and the “spot rising with volatility rising” state means the current rally is not a typical low-vol bull market, but is increasingly driven by positions and options structure.

Goldman Sachs HF Trend Monitor shows that hedge funds’ allocation to momentum factors is at the 90th percentile, semiconductor positions at a record 10%, and software positions at the lowest since 2019. Highly crowded positions mean the rally may keep rising in the short term as chase-the-rally funds push it up, but any reversal could also trigger more intense corrections.

How far can U.S. stocks go? It depends on three constraints

The first constraint comes from oil prices. Diplomatic breakthroughs can quickly reduce geopolitical risk premiums but cannot immediately restore the buffer capabilities of shipping, insurance, refineries, and real supply chains. As long as uncertainty remains around the Strait of Hormuz and U.S.-Iran ceasefire prospects, oil prices may oscillate between optimistic expectations and tail risks.

The second constraint comes from semiconductor positions. The current rally in U.S. stocks is increasingly dependent on AI and semiconductors, especially memory chips and momentum longs. If funds keep chasing this direction, the index may stay strong; but the more crowded the positions are, the higher the market’s sensitivity to earnings, guidance, or fund flow changes. Any slight disappointment could be rapidly magnified.

The third constraint comes from correlation breakdowns. The S&P 500’s relationships with interest rates, gold, VIX, and oil prices have all deviated from long-term averages, meaning the current rally is not equivalent to a comprehensive reduction of macro risk. More precisely, it is the result of falling geopolitical risk premiums, declining U.S. Treasury yields, AI semiconductor momentum, and position squeezes acting together.

Therefore, the “solo feast” of U.S. stocks may continue, but stability is deteriorating. The real key is not whether the indices can make new highs, but which variables will force this trading logic to be repriced—will oil prices climb again, will rates rise again, will the momentum in semiconductors cool, and when will those distorted correlations be restored.

Risk Warning and DisclaimerThe market has risks, and investment should be cautious. This article does not constitute personal investment advice, nor does it take into account the individual’s special investment goals, financial situation, or needs. Users should consider whether any views, opinions, or conclusions in this article suit their specific circumstances. Invest accordingly, and you are responsible for the results. ```