Goldman Sachs Traders' View of 2025: AI Boom, Divergent Markets, and "Tricky" Inflation

At the beginning of 2025, the global financial market is complex and volatile, with the AI boom and "tricky" inflation... taking turns to impact the market. According to observations by Goldman Sachs S&T trader William Hosbein, in the first one and a half months of 2025, the unexpected rise in U.S. Treasury yields, the stock market's excessive reliance on capital flows and seasonal factors, concerns about the persistence of inflation, and intensified competition in the AI sector collectively paint a challenging picture. Goldman Sachs notes: The rise in U.S. Treasury yields exceeded market expectations, breaking the traditional expectations for a rate cut cycle, putting pressure on stock market valuations, and raising concerns about consumer borrowing. At the same time, the stock market's excessive reliance on capital flows and seasonal factors meant that the inflow of funds at the beginning of the year did not drive the market up as usual. Additionally, a strong non-farm payroll report (increased by 3.5 standard deviations) and ongoing investor concerns about potential tariff policies have kept market sentiment tense. Nevertheless, Goldman Sachs' AI basket (GSTMTAIP) still achieved a 5% increase in January, with major stock indices recording returns above average. Regarding the subsequent trends in the U.S. stock market, Goldman Sachs further points out that Wednesday's CPI data once again reminds the market that the view of "high interest rates lasting longer" is not unfounded. The current focus of the U.S. stock market is on the speed of interest rate changes rather than the absolute level. To drive valuation expansion and a recovery in small-cap stocks, interest rates need to decline significantly. If large-cap stocks perform poorly and high interest rates continue to weigh on small-cap stocks, it will be difficult for the market to sustain an upward trend. Continuation and Differentiation of the AI Boom Goldman Sachs states that although the U.S. stock market overall shows cautious sentiment, the AI boom continues, but the trends have become differentiated: Notably, large tech companies such as GOOGL, AMZN, AAPL, MSFT, TSLA, and AMD saw their stock prices decline after releasing earnings reports. In contrast, stocks in Goldman Sachs' AI software basket (GSTMTAIS) averaged a 4.5% increase, while stocks in the GSTMTMEG basket averaged a 3% decline. This may indicate that the AI sector is undergoing a cyclical transition, with funds possibly flowing into the next phase of AI applications. A noteworthy phenomenon is that META's stock price has risen for 19 consecutive days, reflecting market recognition of the company's positioning in the AI sector. "Tricky" Inflation In January, the core inflation in the U.S. increased by 0.446% month-on-month, with the annualized growth rate over three months rising from 3.1% to 3.8%, and the annualized growth rate over six months rising from 3.2% to 3.7%. Goldman Sachs traders believe these data indicate that the inflation issue is not a temporary phenomenon but may have a certain degree of "stickiness." Goldman Sachs' head of foreign exchange research, Mike Cahill, points out: Although the slight over-expectation of inflation data is mainly driven by a few categories, it does not mean that we can let our guard down. The inflation data for January is "real," and the increases in areas such as auto insurance and new fees indicate that the transmission effect of inflation is still ongoing, and businesses still have a certain degree of pricing power.** The Chinese Market Bounces Back Driven by AI Since the beginning of this year, the performance of Chinese ADRs has significantly outperformed the S&P 500 index, with the gap between the two reaching the second highest level in history. This is mainly attributed to the sudden rise of DeepSeek and the recent inflation data showing slight improvement in China. The flow of funds also reflects this trend. Data shows that KWEB (an ETF tracking Chinese tech stocks) has seen an inflow of $101 million this month, expected to achieve the best monthly performance since October last year. Additionally, last week, the pace of net purchases of Chinese stocks by hedge funds reached the fastest level in four months. Risk Warning and Disclaimer The market has risks, and investment should be cautious. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial conditions, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at one's own risk