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Video Title: Why US Stocks Could Climb Higher

Video Author: Chris Hussey, The Markets

Editor: Peggy

Editor's Note: As US stocks approach historical highs again, AI trading continues to be crowded, and interest rate expectations are once again disrupting valuations, market discussions are shifting from "Can tech stocks still rise?" to "What structure is actually supporting this rally?" With buying the dip becoming almost a conditioned reflex for investors, a more critical question emerges: Is the current rise in US stocks driven by short-term sentiment, or has a deeper cycle of capital, earnings, and supply-demand dynamics already formed?

This article summarizes a conversation from the Goldman Sachs podcast "The Markets". In the program, host Chris Hussey and John Flood, Head of Americas Equity Sales Trading for Goldman Sachs' Global Banking & Markets division, discussed US stock market volatility, IPO supply, share buybacks, semiconductor trading, interest rate risks, and earnings momentum.

In this conversation, John Flood's core argument breaks down the question "Can US stocks continue to rise?" into a set of more fundamental structural issues: whether capital is still willing to absorb supply, whether earnings will continue to materialize, whether interest rates will upset the valuation balance, and whether the crowded AI trade has been proven wrong.

First, volatility has transformed from a risk signal to a result of capital reallocation. In the past, high trading volume and market volatility were often seen as precursors to a weakening trend. However, in Flood's view, recent volatility doesn't necessarily indicate cracks in tech stock trading. The US market saw a single-day volume of 34 billion shares, a historical record. This reflects not panic in one direction, but a simultaneous portfolio adjustment by retail, institutional, and corporate funds. Especially ahead of technical events like the Russell Index rebalancing, volatility appears more as an external manifestation of position restructuring. This implies that as long as capital continues to rotate within the market, a pullback isn't necessarily the end of a trend, but could continue to present buying opportunities.

Second, supply pressure has not crushed the market, indicating a stronger bid structure than meets the eye. Historically, IPOs and large-scale financings were often interpreted as draining liquidity from the secondary market. However, in June, two high-profile issuances with a combined notional size of $140 billion barely caused market stress. This suggests that the new supply is being absorbed by strong demand. More importantly, retail investors have been a consistent buyer this year, while institutions have shown clear demand for large issuances. Simultaneously, corporate buybacks are spreading from the Mag 7 to a broader range of S&P 500 companies. The buyback power once dominated by a few tech giants is now broadening, making the US stock market's supply-demand structure less reliant solely on top tech stocks.

Third, AI-related trades remain crowded, but crowding itself hasn't yet provided a reason for a reversal. Over the past year, semiconductors, memory, semiconductor equipment, and the Asian tech supply chain have become the market's clearest themes, with capital expressing AI trades through exposures like South Korea and Taiwan. However, in Flood's view, crowded trades persist because they are still delivering results. The current risk isn't that the market doesn't recognize this theme is popular, but that until AI earnings momentum is proven false, capital struggles to find a more convincing alternative. The fact that some Mag 7 stocks are being used as a source of funds to shift positions could, paradoxically, create new entry points.

Fourth, interest rates remain the most clearly destructive variable for this bull market. Previously, the market focused primarily on growth and earnings. However, with the Fed meeting appearing hawkish and the market pricing in about 40 basis points of rate hikes for the year, rates have re-emerged as a key constraint on valuation. Flood's assessment is not radical: if rates don't rise this year, the market might reinterpret "holding steady" as a form of easing. In other words, the real risk of interest rates isn't just their absolute level, but whether they deviate from the path already priced in by the market.

Fifth, earnings remain the hardest underlying logic for the bull market. Past tech rallies were easily attributed to sentiment and multiple expansion. But the median S&P 500 stock saw earnings growth of 14% in Q1, one of the strongest quarters in decades. The market expects roughly 9% year-over-year growth in Q2. If earnings season continues to deliver near this level, the rally isn't just a valuation trade, but the result of ongoing earnings upgrades. Whether the S&P 500 can break through 8,000 ultimately depends on whether this earnings trajectory continues to validate.

If one were to compress this conversation into a single judgment, it would be: the current strength of US stocks stems not just from the AI narrative, but from the structural support formed by capital supply-demand dynamics, corporate buybacks, earnings growth, and interest rate expectations converging. In this sense, the subject of this article is no longer just a Goldman Sachs trader's view on short-term markets, but the question of how the bull market can continue to find support amid high valuations, high crowding, and high interest rate uncertainty.

The following is the original content (edited for readability):

TL;DR

· Increased US stock volatility does not equal a trend reversal; Goldman Sachs traders view pullbacks as buying opportunities after capital reallocation.

· The surge in IPO supply hasn't overwhelmed the market, indicating current buying power comes not just from a few tech stocks, but is underpinned by institutions, retail, and corporate funds.

· Buyback buying power is spreading from the Mag 7 to a broader range of S&P 500 companies, making the supply-demand structure more stable than the apparent "issuance pressure".

· Semiconductors, memory, and the Asian tech supply chain remain the most crowded trades, fundamentally because AI earnings momentum hasn't been disproven, and capital remains willing to tolerate volatility.

· Interest rates are the biggest risk variable for current US stocks; if rates don't rise this year, the market could reprice "holding steady" as a positive.

· The core of this bull market remains earnings, not sentiment. As long as Q2 earnings season continues to deliver growth, the logic for the S&P 500 to challenge 8,000 remains intact.

Conversation Transcript

Chris Hussey: Welcome to The Markets. I'm Chris Hussey, and it's Thursday, June 25. I'm on the Goldman Sachs trading floor with John Flood, Head of Americas Equity Sales Trading for Global Banking & Markets. Floody, thanks for coming on.

John Flood: Thanks for having me.

Volatility will persist, but US stocks are still in "buy-the-dip" mode

Chris Hussey: Alright, I know you've got your eye on a lot of things, and we'll get into all of them. But let's start with the market this week. It feels like volatility is picking up again. How are you seeing it? Are cracks starting to appear in tech trading, or is this a buying opportunity?

John Flood: I still think we are in a "buy the dip" mode. A reminder, tomorrow is Russell rebalancing. Typically, we get waves of volatility leading up to that event.

Also, a week ago, one week ago from today, while we were talking about the Knicks parade, which was awesome – Go Knicks – the US equity markets, all stock exchanges combined, traded 34 billion shares. That was the most active day in stock market history, breaking the record set on "Liberation Day" in 2025.

To me, this tells me that investors of all types – retail, institutional, corporate – are adjusting their portfolios and reallocating. So, I think volatility will continue, but the overall trend for the market is still upward. Any sell-offs will likely provide good entry points.

Chris Hussey: That's amazing. I hadn't realized that, with 2 million people downtown for the Knicks parade, we were also setting the record for the largest trading day ever.

It's fascinating. Good thing we don't have to manually call out orders on the NYSE floor anymore; that would have been a tough day.

Alright, let's talk about supply, because it's a big factor in the market right now. IPOs are definitely heating up. What do these recent high-profile new issues mean for the market?

IPO supply is surging – why is the market absorbing it?

John Flood: Right, we've seen two high-profile deals in June, within two weeks. Combined, the notional size was $140 billion, making them the first and second largest primary market financings in US history over a two-week period. Incredible.

But the stock market barely reacted. On our desk, we saw very clear institutional demand for these offerings. More importantly, on the retail side – we talk a lot with our clients – retail has been the most consistent buyer of stocks all year. With these high-profile IPOs coming through, it feels like retail buying is accelerating. I expect this trend to continue for the rest of the year.

Chris Hussey: Okay. The other side of supply, of course, is the other side of issuance: buybacks and M&A. The M&A environment seems strong. Buybacks, maybe less certain given how much the market has run. Are they enough to offset these issuances?

John Flood: The conclusion is: yes, they are. And this might surprise people, because in the past when we talked about buybacks, we primarily talked about the "Mag 7" dominating the activity.

But on our corporate buyback desk, we are seeing the buying power broaden out, and that's a positive signal. Two years ago, if the buyback desk had an active day, they might have been running 10 buyback programs. This year, it's more like 50 to 60.

So, across the S&P 500, companies smaller than the Mag 7 are starting to participate in buybacks. I think this trend will continue.

My gut feeling is that even if some Mag 7 companies pause their buybacks this year, we could still have a record year in terms of notional value and number of companies buying back.

Semiconductors, Memory, Asia

Chris Hussey: Makes sense. Alright, John, enough about supply. Let's get into the themes. You're tracking several different things at once. What's capturing your attention the most?

John Flood: I'm still focused on semiconductors and semiconductor equipment. Everyone is positioned there, and people still want to stay there.

We're seeing a lot of capital express this trade through Asian exposure, especially South Korea and Taiwan. As we said, when a trade gets crowded, popular, and has performed well, it will be volatile. But I believe the upward trend will continue.

Keywords: Semiconductors, Memory, Asia.

At the same time, we are also seeing some supply in the Mag 7 as funds shift positions to make room for some semiconductor names, other tech areas, and some IPO-related trades. So, I actually think there are some attractive entry points within the Mag 7 right now. Because you're seeing hedge funds shorting the Mag 7, or using it as a source of cash to free up capacity for this new supply.

S&P 500 hitting 8000: it's still about earnings and rates

Chris Hussey: Right, good point. The Mag 7 is almost becoming the Top 10 now, with three large-cap semiconductor stocks having market caps over a trillion dollars.

Okay, let's put on our interest rate hat. I know you're an equity specialist, but another theme in the market is the Fed. Kevin Warsh just chaired his first June meeting as Fed Chair. How do you see interest rates? How might they impact stocks?

John Flood: Actually, I started my career in 2006 as a rates trader at Lehman Brothers.

Chris Hussey: Oh.

John Flood: Didn't end too well, though.

Chris Hussey: I didn't know that. I started at Lehman too.

John Flood: It was a long time ago.

Right now, the market is worried about rates going higher. I just walked over from the desk, and the market is pricing in about 40 basis points of rate hikes between now and the end of the year.

Chris Hussey: Wow.

John Flood: I would say this is the number one potential disruption to this rally: higher inflation, higher rates than expected. I think this Fed meeting was more hawkish than the market anticipated.

But we also have, in my opinion, the best team of economists on Wall Street. They don't think we get a rate hike this year. Looking at it now, if the Fed stays put between now and the end of the year, the market will actually interpret that as a rate cut.

However, I do think we need to keep a close eye on rates. It's the variable everyone is truly worried about. I side with our economists in believing there won't be a hike. That would be positive for equities.

Chris Hussey: Right. If the market is pricing in 40 basis points of hikes and they don't materialize, I suppose that would be very positive.

Okay, coming back to the present. It's hard to believe we're wrapping up the first half, Q2, and June next week. On the earnings momentum front, what is the sentiment looking like for the upcoming earnings season?

John Flood: Earnings have been the consistent driver of this bull market. We believe they will continue to push markets higher. This is really the core of our bullish thesis.

In Q1, the median S&P 500 stock saw earnings growth of 14%. That was one of the strongest quarters in decades. Q2 earnings are right around the corner, and the current expectation for the median stock is 9% year-over-year growth.

If the final results come close to that, and they cross that threshold – which we believe they can – then earnings will continue to tell the same story: the fundamental backdrop supports further upside.

So, earnings have been exceptional. We think they will continue to be good. Now we just wait to see what Q2 delivers.

Chris Hussey: That's a great point. We just came out of one of the strongest quarters for earnings growth. If anyone is wondering why stocks are at all-time highs, the answer is really that simple.

Alright, let's wrap up. What's your favorite trade right now?

John Flood: My favorite trade right now is to keep leaning into what's already working.

High-momentum trades are crowded, but they are crowded for a reason. I think that includes semiconductors, semiconductor equipment. I think some areas in South Korea and Taiwan will continue to perform well.

So, between now and the end of the year, I like staying along the trades that have already proven effective. I also see a real chance for the S&P 500 to break through 8,000 in the near term. Because, as we said, there are a lot of technical tailwinds forming. Most importantly, earnings are very strong and should remain so.

Chris Hussey: I have to ask though, you mentioned South Korea. It fell 10% in one day this week. That didn't shake you?

John Flood: No.

Chris Hussey: I love that answer. That's FOGO – Fear Of Getting Out. Alright, what will you be watching next week, as we close out the first half and head into July?

John Flood: I don't want to completely not mention any bearish factors.

So, next week, as we said, the first half of the year is ending. There are some technical factors that could act as short-term resistance for the market. One of them is pension rebalancing. Simply put, pensions need to adjust their portfolios to bring stocks and fixed income back to target allocations.

Because stocks have significantly outperformed fixed income, this rebalancing is expected to result in roughly $30 billion of US equity selling. Next Monday and Tuesday, June 29 and 30, are the last two trading days of the first half, creating a short-term headwind.

So, I wouldn't be surprised to see some weakness early next week. But again, that could provide a decent buying opportunity.

Chris Hussey: That's a fascinating catalyst that not everyone will be watching. I really like that observation.

Last question, July brings the World Cup final. I know you love all sports. Who do you think wins it?

John Flood: USA all the way, buddy.

Chris Hussey: Alright, why not? Next week is also the 4th of July. That's it for this edition of The Markets. I'm Chris Hussey. Thanks for listening.

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