Goldman Sachs trader: U.S. stock rally is "extremely narrow," Magnificent Seven repeatedly hit new highs but overall underperform global markets.

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The US stock market displays two major contradictions: Tech giants repeatedly reach new highs and drive the indexes upward, but market breadth has narrowed to an extreme degree, while the performance of US stocks as a whole has lagged behind global markets for 18 consecutive months.

On October 31, Goldman Sachs trader Mark Wilson wrote that the Nasdaq Index had recorded a 5% gain for two consecutive months, but market concentration has reached historical extremes. This Tuesday, when the S&P 500 index rose, the ratio of rising to falling stocks hit its lowest level on record. This means that the major US tech stocks are dominating, while the other 493 index constituents have barely moved.

Even more notably, despite the stellar performance of US tech giants, US stocks have underperformed global markets and have not generated any excess returns in the past 18 months. This reflects two significant market phenomena expected to continue into 2025: a weakening US dollar and the recovery of non-US markets like Germany, southern Europe, Japan, and South Korea, although these trends are not as eye-catching as the AI narrative.

Wilson believes that the continued narrowing of the US market will cause performance headaches for many investors, but current global market breadth is impressive and, supported by valuations and positioning, is likely to continue.

Tech Giants Leave Others Behind, Market Narrowing Reaches Extreme Levels

The article points out that October market data clearly shows the concentration of the US stock rally.

The seven largest US tech stocks (Mag-7) have significantly outperformed the remaining 493 constituents of the S&P 500 index, with the latter basically flat for the month. The seven giants have once again broken out to new highs relative to the S&P 500, continuing their role as the core market narrative.

This narrowing trend is becoming increasingly extreme. On Tuesday, the ratio of rising to falling stocks in the S&P 500 reached the lowest reading on record on a day when the index itself rose. Although the Nasdaq has risen 5% for two consecutive months, market breadth has continued to deteriorate.

Goldman Sachs trader Mark Wilson believes that the ongoing AI investments by large tech companies are the key factor supporting their stock performance. According to previous Wallstreetcn articles, Amazon and Google's cloud businesses are accelerating, and Microsoft maintains a 39% growth rate. These companies are unlikely to slow their spending plans in the short term.

He also points out that Meta faced investor skepticism about provable ROI this quarter, but given the competitive landscape, the company is also unlikely to cut spending. Its $125 billion bond issuance saw record demand, confirming its ongoing investment capacity. Although the stock price response itself may act as a constraint, if Meta shares do not fall sharply in the week ahead, this debate will maintain the current status quo.

After third-quarter earnings, the seven giants’ 2026 capital expenditure plans may be raised by another $60 billion. In this context, Nvidia deserves the title of the first company with a market value surpassing $5 trillion.

European Market Quietly Restructures, Global Breadth Supports Future Performance

Mark Wilson says that although Asian markets have grabbed headlines this week, substantial changes are taking place in Europe. Airbus, Thales, and Leonardo announced a merger of their satellite businesses to create a pan-European industry leader—this small step is of great significance.

Consolidation in the European telecom sector is ongoing, with new deals announced in the UK and Italy this week. These may not be "AI winners," but they are traditional industries where improved AI efficiency should be showcased.

Italian utility ENEL has just started responding to the theme of "AI power upgrading"; its valuation bill plus per-share earnings momentum have pushed its stock to a 12-month relative high. Major European stocks are beginning to shake off this year’s currency drag, with Airbus, ASML, and ENEL all reaching new 12-month relative highs.

Goldman Sachs’ Asia team believes the trend in the US dollar still supports Asian earnings-per-share expectations and broad market performance, and China’s GDP forecast has also been raised again.

Wilson says, the current breadth of global market performance is impressive, and with support from positioning and valuation, is likely to continue.

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