Goldman Sachs Trader: Beyond AI, the Market Begins Searching for "Postwar Trades"

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As momentum trading undergoes its largest consecutive pullback since 2022, the market's concentrated bets on the AI theme are facing renewed scrutiny. Louis Miller, head of Goldman Sachs Global Custom Equity Basket business, believes investors are showing a stronger desire for diversification, while the contours of "post-war trading" are gradually becoming clearer.

The two-and-a-half-day momentum sell-off that began around last Friday marks a turning point in market sentiment. Miller points out that beyond AI core assets, oversold consumer sectors, overlooked healthcare, and financial and defense sectors benefiting from the interest rate environment and easing geopolitical tensions are becoming new focal points for capital.

Meanwhile, the continued high interest rate environment brings new risk exposures. Miller warns that if US Treasury yields cannot return to "pre-war" levels, low-quality stock baskets face more than 20% relative downside risk, and the vulnerability of non-profitable tech stocks cannot be ignored.

Momentum Trading Suffers Setback, Diversification Window Opens

According to Goldman Sachs FICC and Equity division data, the momentum pullback starting last Friday is the largest consecutive momentum decline since 2022. Miller characterizes this as a signal of investors "increasing willingness to diversify," rather than a mere technical adjustment.

Throughout the "war-time" phase, Goldman Sachs' Bottleneck Basket (GSCBBOTL) has been the preferred alternative outside AI core assets. Miller notes the market's definition of AI is expanding from semiconductors and hyperscale cloud providers to broader fields, and investors are starting to seek AI exposure outside of the US.

Asian AI trades have performed well this year, but last week's momentum sell-off created rare buying opportunities in some themes. Goldman Sachs Asian AI Bottleneck Basket (GSXABOTL) pulled back about 3% over the past week. Miller believes this basket focuses on the tightest supply and strongest pricing segments in AI infrastructure, offering high allocation value.

High Interest Rate Environment Highlights Low-Quality Stock Risks

Miller explicitly warns that if interest rates remain high for a long time, some overvalued sectors will face significant pressure. Goldman Sachs Low Quality Stock Basket (GSXULOWQ) integrates several thematic baskets with low-quality characteristics, covering non-profitable tech stocks, low-profit small caps, and companies sensitive to high-yield bonds.

Data shows that despite the significant rise in US 10-year Treasury yields, GSXULOWQ's performance has been relatively resilient. But Miller warns that if yields can't return to pre-war levels, this basket faces over 20% relative downside risk.

For rate-sensitive hedging tools, Goldman Sachs Non-Profitable Tech Basket (GSX1NPTC) has been one of the most popular choices. However, Miller prefers the newly launched Non-Profitable Non-Tech Basket (GSCBNOPS), which excludes names strongly driven by market sentiment—such as space, satellite, quantum computing—and is a more targeted rate-sensitive short.

Healthcare: Compound Assets with Low Correlation to AI

The healthcare sector has long underperformed cyclicals and lacked major catalysts, fading from market attention. But Miller believes this sector is a compound asset negatively correlated with AI trends—performing steadily during AI sell-offs, while also benefiting from AI applications (drug R&D, hospital capex, etc.).

Goldman Sachs data shows US healthcare sub-sectors generally have negative excess correlation with AI. Specifically, Miller is optimistic about biotech, as the upcoming pharmaceutical patent cliff will spur M&A activity, making Goldman's Biotech Strategic M&A Basket attractive. Life sciences tools are poised to benefit from end-market recovery, while growth in biologics will drive the pharma supply chain upwards.

Financial Stocks Outside the US: Dual Beneficiaries of Interest Rates and Post-War Cycle

Miller states rate-sensitive financial stocks will benefit simultaneously from a high interest rate environment and cyclical recovery after war. Although US financial stocks may perform well in the short term, given the uncertainty of US midterm elections later this year, he currently prefers financial exposure outside the US.

In Europe, Goldman’s High Net Interest Income Basket (GSXEHNII) focuses on banks with the strongest profit leverage to interest rates. The Greek Bank Basket (GSXEGRBK) meets high net interest income standards and also offers robust loan growth and valuation advantages versus European peers.

In Asia, Japanese bank trades (GSXAJMEB) have allocation logic ahead of next month’s Bank of Japan meeting, and the latest BOJ stance favors continued rate hikes.

European Defense: Return Opportunity After Valuation Reset

Global defense spending remains on the rise, and June/July’s European Satory Defense Expo and NATO Summit will bring intensive catalysts. Miller points out that after significant valuation compression and position clearing since the start of the year, European defense trades (GSSBDEFE) are returning, with at least 10% recovery space between year-to-date price moves and earnings-per-share revisions.

On valuation, a return to last year's median multiple for European defense means over 20% upside (current P/E about 23 vs. last year's 29). Miller also notes that while the market generally views European defense as less high-tech than US and Asia, mid/small-cap exposure through Goldman’s New Defense Basket (GSXENDEF) provides a purer "new defense" play.

US defense trades (GSXUDFNS) have also moved lower on valuation; previous sell-offs were mainly beta-driven, and post-war restocking is expected to bring earnings upgrades.

Three "Post-War Scenarios" Trades: Option Structures to Capture Binary Inflection Points

Miller has also designed three specific trades for "post-war" scenarios.

First: Low-momentum squeeze trades. At present, US momentum and AI trades are highly synonymous; significant downgrade catalysts could trigger a squeeze in the Low Momentum Basket (GSXULMOM). For consumer sectors, Miller suggests expressing upside via options: for Consumer Discretionary Basket (GSXUCOND), a July 2026 110/120% call spread costs 1.07%, with a max payout ratio of 9.3; for Low-End Consumer Basket (GSXULOWD), a 108/118% call spread costs 1.28%, max payout ratio of 7.8.

Second: Double binary options—Gold vs. Oil. In the post-war scenario, gold miners and buyers are naturally short oil, and potential sovereign wealth fund custody arrangements may pressure the dollar. September 2026 double binary options—GLD above 107.5% and crude oil between $75-$90—currently cost about 12%.

Third: Equity-bond double binary hedge. Miller notes waning AI enthusiasm may drag the broad market; AI has contributed about 6 points of S&P 500 returns in the past 6 months. Goldman’s volatility structuring team believes the war’s end plus cooling AI enthusiasm may bring a scenario of S&P 500 down 3% and 10-year yields down 30bps. The corresponding September 2026 double binary option—S&P below 97% and 10-year SOFR below forward rates by 30bps—costs 8.0%. Miller further highlights that current market focus on inflation risk means the cost of hedging growth risks is relatively cheap.

Risk Warning and DisclaimerMarkets involve risk, investments require caution. This article does not constitute personal investment advice, nor does it take into account individual users' special investment goals, financial situations, or needs. Users should consider whether any opinions, views, or conclusions in this article suit their specific situation. Investment based on this is at one's own risk. ```