A Goldman Sachs partner warns that market sentiment has entered a state of extreme greed, with momentum trading exposure hitting record highs, while multiple signals suggest the AI-dominated narrative may be nearing an inflection point.

Goldman Sachs partner Mark Wilson wrote in his latest weekly report that his morning routine has shifted. Previously, he would first check headlines on the Middle East situation; now, the first thing he does upon waking is check the stock price of South Korea's SK Hynix.

This detail reflects a collective shift in market focus: the wave of investment in AI computing power has completely overshadowed geopolitical risks, becoming the core narrative driving global asset pricing.

Wilson stated bluntly in the report that the current market state is "All Greed, No Fear."

Market Greed Indicators at Extreme Levels, Momentum Trading Hits Records Wilson highlighted three prominent technical features of the current market pointing to overheating risks.

First, sentiment indicators are extremely skewed toward greed. The put/call ratio in the U.S. stock options market is at historical extremes.

The five-day drawdown difference between mega-cap tech stocks and Goldman's "unprofitable tech stock basket" has reached or even exceeded levels seen during the most frenzied period of 2021.

Second, leveraged funds are flooding in. Assets under management for single-stock 2x and higher leveraged ETFs have surged significantly, particularly concentrated in the memory chip sector.

Wilson wrote in a half-joking tone: I am not the only one checking Hynix's stock price first thing every morning.

Third, the momentum factor has become the most dominant force. Momentum strategy exposure in Goldman's global prime brokerage book has hit a new historical record.

Fundamental EPS Growth Backs the Rally, But Stagnation Outside AI Beyond highly exuberant sentiment indicators, fundamentals still provide considerable support.

Year-to-date, the S&P 500 has risen about 10%, while EPS expectations have been revised up by about 15%, with the price-to-earnings ratio actually contracting by 4%.

Wilson believes that, outside the most speculative corners of the market, earnings growth largely provides a reasonable basis for stock price appreciation. Wilson emphasized:

Surprisingly, despite already strong Q1 earnings growth, expected profit growth for the next two quarters is actually accelerating.

At the nominal pricing level, changes in semiconductor product prices are also noteworthy.

Since the mid-1990s, the U.S. Producer Price Index for semiconductors and hardware has been on a long-term deflationary track, until a turning point in the past 12 months.

The jump in South Korea's semiconductor export price growth over the past nine months was described by Wilson as "staggering."

However, Wilson also pointed out a key counter-argument: if AI infrastructure and energy sectors are excluded, S&P 500 EPS expectations have shown almost no growth year-to-date.

In other words, the current earnings-driven logic is highly concentrated; the market is essentially betting on a single theme.

Market Begins Brewing a "Second Narrative" Wilson believes that increasing signs indicate the market is accumulating conditions to gradually move beyond the singular pattern of "trading only one theme."

On the policy front, Federal Reserve Chair Wash has just completed his first week in office.

Wilson cited historical data, noting that among the six Fed Chairs since 1970, Bernanke and Yellen each experienced about a 10% market pullback in their first year, while the other four faced pullbacks of 20% to 36%.

On the earnings rhythm front, the second derivative of EPS growth is expected to slow starting this summer. Coupled with the fading front-loaded effect of capital expenditure from the "Big Beautiful Act," capital spending may see a significant step-down after summer.

On the geopolitical front, a negotiation framework for an Iran ceasefire agreement has taken shape, involving a 60-day truce extension, reopening of straits, mine clearance, and gradual lifting of blockades or sanctions.

Both Wilson and Bloomberg macro strategist Michael Ball emphasized that if this framework materializes, it would represent a genuine de-escalation.

If Iran Deal Materializes, AI-Energy Barbell Strategy Faces Challenge Bloomberg macro strategist Michael Ball outlined potential market moves following a potential U.S.-Iran agreement.

The dominant trade in the current market is holding both capacity-constrained AI computing stocks and energy stocks that power them, forming an "AI capex + energy" barbell structure.

However, once a credible Iran agreement emerges, falling oil prices would cool inflation expectations, thereby lowering yields and the dollar, leading to easier global financial conditions, with energy-importing countries benefiting most significantly.

Michael Ball stressed that this precisely constitutes greater relative benefits for emerging markets and European stocks, as well as broader value and cyclical stocks.

Particular attention should be paid to the European market. Given Europe's lack of energy independence, it could be the biggest beneficiary of ending the Iran conflict. Europe's unique capital expenditure cycle is currently underestimated, as evidenced by German fiscal spending data.

Technically, U.S. stock single-stock volatility is about 3.5 times index volatility, while in Europe it is only about 50% higher. This means the cost-effectiveness of capturing stock-specific opportunities in Europe is relatively higher.