U.S. stock indexes hit new highs, but the decline in individual stocks far exceeds the gains? Goldman Sachs: Momentum is crowded, and a reversal will trigger a sharp pullback.

The S&P 500 index continues to hit new historical highs, but it cannot hide the deep cracks within the market - while the index rises, the number of falling stocks far exceeds the number of rising stocks. Goldman Sachs' Chief U.S. Stock Strategist Ben Snider and his team warned in a recent report that the current stock market rally is highly concentrated in a few giant tech stocks, with market breadth falling to levels not seen since the dotcom bubble. Historical data shows a clear correlation between narrowing market breadth and the risk of a significant market pullback, with downside risks continuing to accumulate. The report points out that this narrow rally pattern will ultimately end in two ways: either the lagging stocks will rise to catch up, or the leading few stocks will continue to decline. Both paths point to increased volatility in momentum strategies. Goldman Sachs Prime data shows that hedge funds' net exposure to momentum has reached near multi-year highs, while overall leverage has decreased from previous levels but remains high within the past five years. For investors betting on an immediate shift in the market, Goldman Sachs believes it is still too early: before AI trading fully matures, market breadth may struggle to return to normal. This means that the underlying tension of the current narrow market trend will continue to build up, and once triggered, the impact of crowded selling may exceed expectations - this is the biggest potential risk faced by institutional investors. The "negative breadth" concerns behind the record high of the S&P 500 The S&P 500 index has recently been hitting new all-time highs continuously, but these new highs are supported by only a few large-cap tech stocks. According to Goldman Sachs' statistics, in the past five new highs, four have been achieved when the number of declining stocks exceeded the number of rising stocks - known as "negative breadth" highs. This phenomenon indicates a serious deviation between the apparent market prosperity and the actual trends of most stocks. Momentum traders do not pick individual stocks, but chase the strongest trends, hoping to exit before the trend reverses. The report points out that once this one-sided chase encounters a momentum reversal, it will create a significant destabilizing effect on the overall market. Recent cases have exposed the fragility of this strategy - funds rushing into a hot stock for quick gains, only to see the gains evaporate in a matter of days. Funds flocking to momentum stocks, withdrawal risks are accumulating Goldman Sachs Prime data shows that hedge funds' current net exposure to the momentum factor is approaching multi-year highs, meaning that once momentum reverses, the selling pressure from forced liquidation will sharply increase. Moreover, although hedge funds' overall leverage has recently declined, it remains high within the five-year historical range. Goldman Sachs explicitly warns in the report: as the narrow rally continues, similar to past withdrawal risks are accumulating - the market is becoming increasingly fragile, and the impact of a crash is often greater. The core logic of this pattern is: when a large amount of money is concentrated in the same momentum stocks, and market breadth continues to shrink, once a sell-off is triggered, the lack of funds to support the remaining stocks will amplify the overall decline. The essence of narrowing market breadth: AI themes have not yet spread The current narrowing of market breadth essentially reflects the incomplete diffusion of AI investment themes. The rally is primarily focused on AI infrastructure-related assets, while the broad impact of AI on enterprise capabilities and business scenarios has not been fully priced in by the market. Once AI is widely deployed in enterprises, the market will be able to identify a wider range of "beneficiaries" - including companies that improve performance through the sale of AI products, and those that enhance production efficiency using AI. At that time, the valuation pressures on companies seen as under pressure from AI impact will also be alleviated, and market breadth is expected to gradually return to normal. However, this process is not immediate. The report explicitly states that enterprise adoption of AI is a gradual process, and true restoration of breadth is only likely to occur after the current narrow trend fades. In other words, the market is accumulating internal contradictions that need time to digest - and the clock has already started ticking. This article is reprinted from "Wall Street News", author: Li Jia, GMTEight editor: Chen Siyu.