The U.S. stock market is currently exhibiting a rare divergence. On one side, consumer confidence has plunged to historic lows, and traditional correlations between major macro assets have broken down. On the other, propelled by the AI and semiconductor rally, major indices continue to hit record highs. The market's primary concern is no longer whether the uptrend can continue, but how long this highly concentrated AI-driven rally can withstand pressures from oil prices, interest rates, and crowded positioning. Driven by rising expectations for U.S.-Iran negotiations and a surge in semiconductor stocks, U.S. equities hit new all-time highs on Tuesday. The Nasdaq 100 index surpassed 30,000 points for the first time, while the S&P 500 rose approximately 0.5%. Concurrently, a retreat in oil prices pushed U.S. Treasury yields lower, and a rebounding U.S. dollar weighed on the performance of gold and Bitcoin. Semiconductors remain the core driver of this rally. Following a significant target price upgrade for Micron Technology by UBS, trading sentiment in memory chips heated up rapidly, with the semiconductor sector gaining 14% over the past five days. However, NVIDIA has begun to underperform the broader semiconductor index, indicating that capital is rotating away from the leading stock toward areas with higher potential volatility. Goldman Sachs trader Nelson Armbrust warned that the current correlations between the S&P 500 and interest rates, gold, the VIX, and oil prices have all deviated from their 20-year historical averages and entered extreme territory. "One side of the market will have to give," he said, noting that "the equity indices are not reflecting the full reality of the market."
The AI theme persists, but the driving forces are rotating. The strongest current driver in the equity market comes from semiconductors, particularly the memory chip segment. Goldman Sachs trader Pete Callahan pointed out that the semiconductor index has outperformed NVIDIA by about 16.5 percentage points over the last five trading days, marking the largest five-day advantage of the SOX index over NVIDIA since 2018. Notably, this rally is not being led comprehensively by mega-cap tech stocks. Large-cap tech stocks have shown relative weakness overall, with NVIDIA slightly lagging, suggesting funds are flowing from the AI leader to more volatile trades within the semiconductor space. Memory chip-related stocks opened sharply higher, with a DRAM ETF seeing single-day notional trading volume reach approximately $3 billion. Goldman Sachs' Meme-Stocks basket also posted significant gains. AI remains the market's dominant theme. AI semiconductors, Agentic AI, and AI data center stocks led the market's gains. Goldman Sachs noted that the strength in the momentum factor that day was almost entirely driven by long positioning, with the strongest-performing stocks over the past 12 months continuing to significantly outperform. Simultaneously, increasingly extreme structural signals are emerging in the options market. Data from SpotGamma shows aggressive negative Delta flows in 0-DTE options, primarily driven by selling call options. Meanwhile, the combination of "rising volatility alongside rising spot prices" persists. This indicates the current advance is not a typical low-volatility, risk-on expansion but is increasingly being driven by positioning squeezes and options trading structures. Consumer confidence hits bottom, but a split emerges between sentiment and behavior. Goldman Sachs trader Chris Hussey highlighted a common question: why are U.S. stocks hitting new highs while consumer confidence indicators are at historic lows? His explanation is that what consumers "feel" and what they "actually do" are not aligned. In other words, sentiment is pessimistic, but consumption behavior has not deteriorated in sync. Meanwhile, fiscal stimulus continues to support household cash flow. Chris Hussey mentioned that tax credits from last July's budget bill are improving household balance sheets and partially offsetting pressure from rising gasoline prices. U.S. macro data also shows clear divergence. The Chicago Fed National Activity Index rebounded sharply, the Conference Board Consumer Confidence Index exceeded expectations, and the Dallas Fed Manufacturing Index showed solid performance. Conversely, the S&P CoreLogic Case-Shiller Home Price Index weakened, and the Philadelphia Fed Manufacturing Index missed expectations. Overall, U.S. economic data continues to hold up "slightly better than expected." This explains the market's current contradiction: consumer sentiment is extremely weak, but economic data has not yet turned significantly negative, and actual consumption behavior has not seen a synchronized decline. However, the AAII bull-bear spread remains negative, indicating investor sentiment has not genuinely turned optimistic alongside the index highs. Macro correlations fail, negative Gamma intensifies: Goldman Sachs warns of structural fissures in U.S. stocks. Goldman Sachs trader Nelson Armbrust warned that current U.S. equity indices are not reflecting the full reality of the market. Correlations between the S&P 500 and key macro assets have comprehensively deviated from their long-term averages: its correlation with interest rates is at a decade low, with gold at a decade high, with the VIX at a two-year high, and with oil prices at a decade low. These are extremely rare levels even within a 20-year historical context. In other words, while U.S. stocks are still rising, their traditional linkages with interest rates, volatility, commodities, and safe-haven assets are breaking down. For investors relying on historical correlations for asset allocation, hedging, and risk budgeting, this implies declining model stability. Concurrently, Gamma has turned negative. In a negative Gamma environment, the market becomes more sensitive to price movements. The state of "spot prices rising alongside rising volatility" also signifies that the current market action is not a typical low-volatility, one-sided bull market but is increasingly driven by positioning and options structures. Data from Goldman Sachs' HF Trend Monitor shows hedge funds' current allocation to the momentum factor has risen to the 90th percentile, semiconductor positioning has reached a record 10%, while software positioning has fallen to its lowest level since 2019. Highly crowded positioning means the rally may continue upward in the short term driven by momentum-chasing capital, but any reversal could trigger a more pronounced correction. How far can U.S. stocks go? It depends on three constraints. The first constraint comes from oil prices. Diplomatic progress can quickly lower geopolitical risk premiums but cannot immediately repair the buffer capacity of shipping, insurance, refineries, and the actual supply chain. As long as uncertainty persists regarding the Strait of Hormuz situation and the prospects for a U.S.-Iran ceasefire, oil prices may fluctuate repeatedly between optimistic expectations and tail risks. The second constraint stems from semiconductor positioning. The current U.S. stock rally is becoming increasingly reliant on AI and semiconductors, particularly memory chips and momentum long trades. If capital continues to chase this direction, indices may maintain their strength. However, the more crowded the positioning, the higher the market's sensitivity to earnings, guidance, or fund flow changes. Any minor disappointment could be rapidly amplified. The third constraint arises from the failure of correlations. The simultaneous deviation of the S&P 500's relationships with interest rates, gold, the VIX, and oil prices from their long-term averages indicates that the current rally does not equate to a comprehensive easing of macro risks. More accurately, it is the result of a combination of falling geopolitical risk premiums, declining U.S. Treasury yields, AI semiconductor momentum, and positioning squeezes. Therefore, the U.S. stock market's "solo party" may continue, but the stability of the rally is declining. The crucial question is not whether the indices can set new highs, but which variables will force a repricing of this trading logic—whether oil prices will rise again, whether interest rates will reassert themselves, whether semiconductor momentum will cool, and when those distorted correlations will revert.
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