by Jan-Patrick Barnert
A 30% probability of a US recession might sound like a red flag, yet global stocks remain buoyant as betting against the market momentum “feels almost irrational,” according to a macro trader at Goldman Sachs Group Inc.
“The key point is that the market can’t look far enough. This is why it will ignore the recession risk,” Paolo Schiavone wrote in a note to clients.
Investors are likely to disregard a possible labor market slowdown, instead focusing on strong liquidity as well as structural growth themes such as artificial intelligence and fiscal credit expansion, he said.
US stocks are near record highs as robust corporate earnings and wagers on lower interest rates overshadow concerns about the impact of sweeping tariffs. Investors have also flocked back into technology heavyweights and the AI trade at a time when data signals economic growth might be slowing.
Swaps traders are now pricing in over 100 basis points in Federal Reserve rate cuts by mid-2026. With a flood of front-end Treasury issuance injecting liquidity into money markets, cash is plentiful. At the same time, fast-money investors have piled into the market as the S&P 500 Index rebounded from the tariffs-driven selloff in April.
Schiavone said these trend-following investors, or CTAs, now control the bulk of “hot” equity flows. That’s left the market showing signs of myopia as “their singular playbook (‘let winners run’) leaves little room for fundamental bears,” he said.
With short-dated strategies prevailing and volatility subdued, few are willing to fade a still-intact uptrend, the Goldman trader said, suggesting the path of least resistance remains higher.
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