A Goldman Sachs partner has issued a warning that the market has entered a state of extreme greed. The put/call ratio is at historical extremes, leveraged ETF assets have surged significantly, and momentum strategy exposure has reached a record high. Multiple signals suggest the current landscape, dominated by a single AI narrative, may be approaching an inflection point. These include the new Federal Reserve Chair taking office, a projected slowdown in EPS growth after the summer, and the emergence of a preliminary framework for an Iran ceasefire agreement. Should such an agreement materialize, a subsequent drop in oil prices could challenge the prevailing "AI + Energy" barbell strategy, potentially making Europe and emerging markets the primary beneficiaries.
Goldman Sachs partner Mark Wilson noted a shift in his morning routine, stating that checking the stock price of SK Hynix has become his first task, replacing his previous focus on Middle East headlines. This detail reflects a collective shift in market attention, where the wave of investment in AI computing power has overwhelmingly overshadowed geopolitical risks to become the core narrative driving global asset pricing.
Wilson described the current market sentiment as "All Greed, No Fear," highlighting three prominent technical features pointing to overheating risks.
First, sentiment indicators are heavily skewed towards greed. The put/call ratio in the U.S. options market is in a historically extreme range. The five-day drawdown differential between large-cap tech stocks and Goldman's "Unprofitable Tech Basket" has reached or even exceeded levels seen during the peak frenzy of 2021.
Second, leveraged capital is flooding in. Assets under management for single-stock leveraged ETFs (2x and above) have risen sharply, with a particular concentration in the memory chip sector. Wilson remarked wryly that he is not the only one checking Hynix's stock price first thing in the morning.
Third, the momentum factor has become the dominant force. Exposure to momentum strategies within Goldman Sachs's global prime brokerage book has hit a new record high.
Beyond exuberant sentiment, fundamental EPS growth currently provides substantial support for the rally. Year-to-date, the S&P 500 is up about 10%, while EPS expectations have been revised upward by approximately 15%, resulting in an actual contraction of the price-to-earnings ratio by 4%. Wilson argues that outside the most speculative corners of the market, earnings growth largely provides a reasonable basis for stock price appreciation. He noted it is surprising that, despite already strong Q1 earnings growth, expected profit growth for the next two quarters is actually accelerating.
At the nominal pricing level, changes in semiconductor product prices are noteworthy. The U.S. PPI index for semiconductors and hardware had been in a long-term deflationary trend since the mid-1990s until it turned over the past 12 months. Wilson described the jump in South Korea's semiconductor export price growth over the last nine months as "staggering."
However, Wilson also presented a key counter-argument: if AI infrastructure and the energy sector are excluded, S&P 500 EPS expectations have shown almost no growth year-to-date. In other words, the current profit-driven logic is highly concentrated, with the market essentially betting on a single theme.
Wilson observes that increasing signs suggest the market is accumulating the conditions to gradually move beyond this "single-theme" trading pattern. On the policy front, the new Federal Reserve Chair has just completed their first week. Citing historical data, Wilson noted that among the six Fed Chairs since 1970, Ben Bernanke and Janet Yellen each saw market pullbacks of about 10% in their first year, while the other four experienced declines ranging from 20% to 36%.
Regarding the earnings trajectory, the second derivative of EPS growth is expected to slow starting this summer. Coupled with the fading front-loaded effect of capital expenditure from the "Big Beautiful Bill," capital spending could see a significant step-down after the summer.
On the geopolitical front, a negotiation framework for an Iran ceasefire agreement is taking shape, involving a 60-day ceasefire extension, reopening of the Strait, mine clearance, and a gradual lifting of blockades or sanctions. Both Wilson and Bloomberg macro strategist Michael Ball emphasized that the implementation of such a framework would constitute a genuine easing of tensions.
Michael Ball analyzed potential market movements following a credible U.S.-Iran agreement. The dominant trade currently is a barbell strategy of holding both capacity-constrained AI computing stocks and the energy stocks that power them. Should a credible Iran agreement emerge, a drop in oil prices would cool inflation expectations, subsequently lowering yields and the dollar, leading to easier global financial conditions. Energy-importing nations would benefit most significantly.
Ball stressed that this scenario would provide greater relative benefits for emerging markets and European equities, as well as broader value and cyclical stocks. The European market warrants particular attention. Given Europe's lack of energy independence, it could be the biggest beneficiary of ending the Iran conflict. Europe's unique capital expenditure cycle is currently undervalued, with German fiscal spending data providing evidence. On a technical level, individual stock volatility in the U.S. is about 3.5 times that of index volatility, whereas in Europe it is only about 50% higher, suggesting a relatively better risk-reward profile for capturing stock-specific opportunities in Europe.
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