Goldman Sachs trading desk warning: market's dominant narrative is quietly shifting from AI to interest rates

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The market is quietly undergoing a narrative shift.

Rich Privorotsky, head of Goldman Sachs’ trading desk, recently stated that the core logic driving the market is shifting from the AI capital expenditure boom to interest rates and supply pressures, resulting in simultaneous pressure across multiple asset classes.

Over the past week, the momentum in AI and momentum sectors has clearly cooled, some popular stocks have fallen back sharply, and South Korea’s KOSPI index also dropped overnight. Meanwhile, US Treasury yields continue to rise, 30-year Treasury futures struggle to sustain buying, and the bond market has not turned dovish despite falling oil prices.

Rich Privorotsky stated that his model remains bearish on risk assets, primarily because his model is highly sensitive to bond market turmoil and cannot tolerate the current rise in bond volatility. Based on this, he believes the most likely “pain trade” in the market is not the traditional US equity downturn, but a style rotation: the Euro Stoxx 50 outperforming the S&P 500—in other words, the model is bearish due to bond market concerns, but what may truly surprise the market is the outperformance of European blue chips relative to US technology stocks.

The AI rally fades, momentum trading accumulates fragility

The recent pressure on the semiconductor sector may indicate that previous fervor is starting to fade. Rich Privorotsky noted that US technology, semiconductors, AI, crypto tokens, optics, and energy sectors previously formed a high-gamma chase effect (meaning the higher the price, the more forced buying from hedging activities).

Several indicators show market sentiment is at extreme levels: Goldman Sachs’ risk appetite indicator is at a multi-year high, retail fund inflows are accelerating, and the asset under management of leveraged semiconductor ETFs nearly doubled in about six weeks, forming a large amount of “shadow gamma” exposure.

Rich Privorotsky believes the current rally could exceed rational expectations in both duration and magnitude—in other words, it could last longer and rise higher. He does not try to call a top, but reminds that multiple factors have recently combined to significantly amplify market volatility intensity and outbreak frequency. Additionally, he warns that a large amount of leveraged funds has accumulated within the strategy, and the entire system is becoming increasingly reliant on AI-related themes remaining hot as a lifeline.

Triple liquidity squeeze

Concentrated supply pressures from debt and IPO issuance are becoming a common theme across equities, bonds, and government financing markets.

Rich Privorotsky pointed out the market is currently digesting hundreds of billions of dollars of investment-grade bond issuance, mainly to fund about $700 billion of AI capital expenditures expected in 2026—a number forecast to swell beyond $2 trillion, with related projects generating virtually no free cash flow. At the same time, the US fiscal deficit continues to expand, and government bond supply remains high.

Goldman Sachs Global Investment Research estimates that IPO volume could reach nearly $160 billion this year, with some key deals arriving as early as mid-June. Rich Privorotsky noted, referencing historical experience, that before major issuance windows open, markets usually come under pressure as liquidity is continuously absorbed.

Geopolitical disturbances persist, market reactions become dulled

Affected by repeated US-Iran tensions, the market’s reaction to signals of geopolitical easing has become dulled.

According to Xinhua, on the afternoon of the 18th Eastern time, Trump posted on social media that, at the request of the leaders of Qatar, Saudi Arabia, and the UAE, he had ordered an attack on Iran “tomorrow (19th)” to be called off from the original plan.

Affected by this news, oil prices gave back some of the previous day’s gains. However, Rich Privorotsky pointed out that, notably, in the absence of negative news, S&P 500 and Nasdaq 100 futures did not show clear gains, indicating the market is currently slow to respond to potential positives.

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