Goldman Sachs Partner: Summer is over, market focus is on the "bond market storm," and the VIX (Volatility Index) has fallen to its lowest point during Trump's presidency.

The US bond market and stock market are telling two very different stories.

Global bond markets remained under pressure during the Labor Day holiday – the yield on Japanese 10-year government bonds rose to its highest level since 1996, and the yield on UK 30-year government bonds hit its highest point since 1998. Developed market assets with longer durations were sold off throughout the summer. Meanwhile, the VIX index, which measures fear in the US stock market, fell to its lowest level since Trump's second term (excluding the Christmas holidays), and the MSCI World Index has risen 13% this year, less than 1% away from its all-time high.

This divergence is precisely the core contradiction highlighted by Goldman Sachs partner Mark Wilson in his latest "Weekly Mash" report. He points out that the stock market's "resilience" narrative masks a quietly unfolding reality: under pressure from continuously rising yields, valuation multiples are quietly shrinking, while the market has yet to fully price in changes in the discount rate. With students returning to school and the market transitioning from summer mode, Wilson outlines the current opportunities and risks around four main themes.

Federal Reserve Governor Waller has explicitly stated that next week's CPI and PPI data will be crucial. Before the inflation data is released, this "cognitive divide" between the bond and stock markets may continue to test investors' judgment.

Paradox 1: Momentum factors have been halved, but the market narrative has not been updated.

This summer, the market's internal structure has undergone profound changes, but this transformation has not received the attention it deserves.

Wilson points out that the "high beta momentum" portfolio tracked by Goldman Sachs has retreated nearly 50% since its high at the end of June, with its year-to-date returns turning negative. The rotation in July has been thoroughly discussed, but the second wave of decline in August has received almost no attention—he believes that the risk transfer and digestion pressure brought about by the July events dragged down the price trend in August, which should not be surprising.

More noteworthy is the change in the composition of the momentum factors: software stocks have entered a bullish phase in the 3-month timeframe, but remain in a bearish phase in the 12-month timeframe. Wilson explicitly stated that one should not expect the leading sectors of the first half of the year to regain market dominance in the second half.

Paradox Two: Returns hit generational highs, yet valuations are already bleeding despite the stock market's "resilience".

The continued rise in global yields is one of the most underestimated risks in this round of market activity.

Wilson acknowledged that the stock market has shown considerable resilience in the face of a significant rise in global yields; however, he also pointed out that valuation multiples have actually contracted during this "resilient period," and the market has not fully rewarded the "remarkably consistent" strong earnings performance this year.

He attributed the current bond market pressures to two independent themes: first, geopolitical risk premiums rebounded in August, with the Persian Gulf conflict and the escalating Russia-Ukraine situation driving a repricing of oil and gas prices; second, the AI investment wave brought a double impact—large technology companies began to finance capital expenditures with debt, intensifying capital competition and creating price pressures in certain economic sectors.

Wilson's conclusion is direct and clear: "Once the fixed-income sell-off stops and yields stabilize, it will be an unconditional boon to the stock market. And this is precisely the clearest signal at present—because the sell-off has not yet stopped."

Paradox Three: As geopolitical risks escalate, European defense stocks have underperformed fundamentals for a full year.

Logically, rising geopolitical risks should be a direct benefit to the defense sector, but the actual trend is quite the opposite.

Wilson points out that there has been a significant 25% divergence between the stock price performance and earnings trends of European defense stocks over the past 12 months—earnings have remained strong, but stock prices have consistently lagged behind. Current positioning in the sector is at a two-year low, and Goldman Sachs' prime brokerage data shows that the long-short ratio has just rebounded from a local low.

He attributed the initial valuation discount to the substitution effect of "new technology" on "old technology," but pointed out that both are now under pressure, so this explanation no longer holds true.

On the political calendar, Wilson advised investors to pay attention to the upcoming Saxony regional elections, the Swedish elections, and the rising probability of Marine Le Pen's victory in next year's French presidential election. He explicitly stated that he favors increasing holdings of European defense stocks at current levels.

Paradox Four: AI Narratives Shift from "Shovel Sellers" to "Shovel Users"—CyberCab May Be the Most Underestimated Signal

The AI investment theme is undergoing a significant narrative shift.

Wilson points out that the market is shifting from beneficiaries of AI capital expenditure (i.e., the infrastructure layer) to beneficiaries of AI use cases—from Salesforce to Snowflake, and then to Tesla, this rotation trend is expected to continue. He cites fundamental evidence including: Nvidia's significantly better-than-expected results and upward guidance revision, Dell's results sending the same signal, positive reviews of OpenAI's Astra model, and the parallel development of open and closed ecosystems revealed by Nvidia's acquisition of Hugging Face.

Wilson specifically highlighted the progress of Tesla's CyberCab, calling it one of the most impressive yet least discussed pieces of evidence of AI capability leaps he had ever seen. He cited data showing that CyberCab had accumulated 380,000 miles of driving experience by the time of Tesla's earnings call on July 22, and had since quickly surpassed 1 million miles.

In the longer term, Wilson mentioned that Goldman Sachs has raised its 2030 forecast for humanoid robot shipments by six times and has begun to calculate its operational impact—for example, Amazon expects automation to bring it approximately $72 billion in cost savings and a 240 basis point increase in EBIT margin.

In summary, Wilson's core assessment is that after a summer of "indigestion of the first half's narrative," the market has completed its rotation, experienced valuation contraction, and is beginning to search for a new narrative that can be self-consistent in a high-yield environment. However, he warns that the generational high yields of Japanese and British government bonds are not a negligible "atmosphere," but rather a reminder of higher discount rates, intensified capital competition brought about by AI debt financing, and the reality that "resilient growth" and "perfect pricing" can coexist—until one day they no longer can. The low level of the VIX may simply mean that the market has not yet found enough reason to panic, rather than that the risks have dissipated.

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