As equity investors brace for the upcoming inflation figures, a strategist at Goldman Sachs is directing attention toward a distinct market driver, suggesting artificial intelligence will be the pivotal force determining equity market direction in the coming sessions. Lee Coppersmith argues that the convergence of a major product launch and a marquee industry event, set against a backdrop of drastically compressed positioning, could create significant upside for stocks.
The market is currently at a critical inflection point. The forthcoming release of a flagship new model from OpenAI, scheduled for Tuesday at 9:30 AM Pacific Time during the Goldman Sachs Communacopia + Technology Conference, alongside acutely reduced positioning levels, has created a coiled-spring dynamic. According to Mr. Coppersmith's latest research note, the market faces three potential paths from here: the inflation data print, the OpenAI announcement, and the sustainability of the current "goldilocks" pricing, which already embeds substantial growth optimism. Any single one of these catalysts could be sufficient to move the tape decisively.
Looking at the structural market backdrop, the net leverage of US fundamental long/short hedge funds currently sits at just the 4th percentile over the past year. Simultaneously, semiconductor implied volatility, measured by the VXSMH index, has been almost halved, plunging from approximately 65 in July to 36, its lowest level since early 2026. Furthermore, the Goldman Sachs tech long/short momentum basket remains roughly 50% below its late-June peak, all of which occurs while the premium for a weekly straddle on the S&P 500 is a mere 1%. This paints a picture of an options market that is pricing in an unusually placid outlook, even as it confronts a dense calendar of potential market-moving events.
Light Positioning and Underestimated Risk in the Options Market
The current positioning provides ample fuel for a significant market move. Goldman Sachs proprietary data indicates that net leverage for US fundamental strategies is at the aforementioned 4th percentile, with gross leverage at the 27th percentile, representing a stark shift from just two months prior. Although there has been some recent buying to cover, overall positioning remains exceptionally light. The options market reflects this de-risking process. The substantial reset in semiconductor volatility has brought the VXSMH back to early-2026 levels. However, this has not translated into a bearish tilt; the average put/call skew for S&P 500 constituents remains near three-year lows. This suggests that while the option market has compressed the implied range of outcomes, it is pricing for almost no downside risk. In this dynamic, Mr. Coppersmith sees high value in holding "right-tail" exposure via options, as the combination of light positioning, suppressed volatility, and a dense catalyst calendar creates an asymmetric risk-reward profile.
Dense AI Catalyst Calendar Expected to Support Capital Expenditure Upside
The coming week represents a significant test for the AI narrative. The Communacopia + Technology Conference, hosting 40 public and private companies, will center its core discussions on AI spending, returns, and the competitive landscape looking toward 2027 and beyond. Goldman’s research team maintains its projection for upside in AI capital expenditure, expecting computing demand to outpace supply through 2028. Meanwhile, the tech long/short momentum basket's near-50% decline from its June peak, despite a nearly 7% rally on Friday, has been costly for investors trying to time recent sector rotations. Mr. Coppersmith identifies this very pain as the origin of the opportunity, noting that the difficulty of re-engaging is precisely what has led to the 4th percentile net leverage and the halved semiconductor volatility. On a stock-specific level, names like Micron and SanDisk are beginning to show signs of breaking out from their recent downtrends after a summer of consolidation.
Fragile Macro "Goldilocks" Conditions Suggest Growth Optimism is Priced In
Despite the light positioning, the macro backdrop offers limited room for upside. Goldman’s research team points out that for risk appetite to expand further, it would require lower interest rates rather than stronger growth expectations. The growth component of the firm’s risk appetite index is already near the top of its post-pandemic range, while the monetary policy component remains negative. The ideal "goldilocks" scenario would involve lower energy prices, potentially driven by the reopening of the Strait of Hormuz, combined with further declines in US inflation. However, with growth optimism heavily factored into various asset classes, there is now very limited buffer should growth disappoint or a new geopolitical shock emerge. The dynamics between earnings and valuations are also noteworthy. This year's tech sector earnings have been primarily supported by AI capital expenditure and paper gains from equity investments. Investors' willingness to assign higher multiples to AI earnings, which are increasingly exhibiting cyclical characteristics, is on the wane, a pressure exacerbated by rising leverage within the AI ecosystem. Goldman’s strategy team anticipates lower equity Sharpe ratios in the future, but if rates decline while growth remains resilient, it could aid in valuation repair, especially as AI applications expand beyond infrastructure build-out into broader use cases.
Hedging Strategy: Long Broad AI, Short Non-AI S&P 500
For risk management, Mr. Coppersmith offers a specific operational framework. He identifies downside protection on the S&P 500 Non-AI Index (SPXXAI) as offering exceptionally attractive convexity. This index has been strengthening over the past two months as investors were forced to rotate out of AI, remaining near all-time highs—a dynamic that would reverse should capital flow back into the sector. He views the pair trade of being long the broad AI basket (GSTMTAIP) while simultaneously shorting SPXXAI as currently offering compelling valuations.
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