Goldman Sachs: Trading Desk 01/24/2025
It was a week of relief with the SPX +1.7% (EW +1.2%), NDX +1.6% and RTY +1.4%, while the 10-year yield was unchanged at 4.6%. Tariffs turned out better than expected (we lowered our odds of a ~20pp increase in import tariffs from China from 90% to 70%). The White House seems more focused on growth, the Stargate announcement added incremental fuel to the tech sector (ORCL was the big winner with a 14% rise on the week)… all this in an environment of benign rates and a “Goldilocks”-like economy ahead of next week’s Fed meeting.
The scenario is positive. We have entered the traditional January effect; liquidity has improved significantly; there is re-leveraging in volatility control strategies; the blackout window ends in the next few days; there is a decline in sentiment; favorable seasonality in the second half of January; and it is the largest month of the year for equity allocations. (Thanks to Rubner). According to PB, global equities were modestly net-bought for the first time in four weeks, driven by risk-off flows as short-covering outweighed long-selling (1.5 to 1). The decline in gross trading activity this week was the largest since July 2024.
From a flow perspective, long-term investors ended as net buyers with $4.5 billion for the week, while hedge funds ended as light net sellers. The biggest buys were concentrated in technology and healthcare, while consumer discretionary ended with net selling. Best of the week: China ADRs, expensive software, secular growth and infrastructure all up +5%. Worst: Oil fell 4% and commodity sensitives were unchanged.
Q4 results have been a strong boost for the market… we saw it last week in the banks, and this week in a few companies, notably NFLX, APH, STX, GE, GEV, TDY, and ABT. The overall bar for EPS growth is high, with an 8% YoY forecast. So far: ~15% of the S&P have reported, ~59% of companies beat estimates by more than one standard deviation, similar to what has been seen in recent quarters and above the historical average of 46%. Next week will be extremely active, with 40% of the S&P 500 market cap reporting.
The positioning level in technology has been adjusted lower. Megacap numbers need to meet expectations, but with a stronger dollar, lower year-over-year growth and higher capex demands, the landscape is not as straightforward as in 2023/24. Megacap summary courtesy of Pete Callahan:
MSFT : Positioning looks cleaner… Strong focus on Azure Cloud re-acceleration timing, Stargate comments and updated Capex view.
META : Some “angst” towards numbers due to expected above-consensus guidance on 2025 capex and expenses (vs. Q1 FX headwinds, extra day, etc.). On a larger scale, it’s all about the path to monetize AI ambitions on its ~3.3B user base. Headlines announced today guiding 2025 capex at $60-65B vs. market-estimated $51B.
AAPL : In the midst of one of its worst-performing months in years, all eyes are on revenue guidance for the March quarter, with investors debating whether a potential below-consensus guidance will be a catalyst (heading into the second-half cycle) or not.
A closer look at hedge funds’ positioning in AI across thematic baskets shows that while the aggregate long/short ratio of AI Power (GSENEPOW) constituents has reached two-year highs, net trading flows in this group have fluctuated in recent months and are still modestly net-sold over the past year. This suggests that: 1) much of the recent increase in positioning is due to price/mark-to-market movements, and 2) hedge funds have not yet repurchased the majority of what they sold between June and August.