TMT trading is booming, financial net buying is the highest, hedge funds are sweeping up consumer stocks... Goldman Sachs summarizes the five major trading themes in the U.S. stock market at the end of the year
Goldman Sachs traders indicated that last week, activity in the TMT sector on the Goldman Sachs trading desk significantly increased, with multiple seven-figure trades occurring. Financials were the sector with the highest net buying, with insurance, consumer finance, and capital markets being the sub-sectors with the most net buying. Meanwhile, industrial stocks faced some pressure as the market worried about prolonged high interest rates in the U.S., widespread tariffs, and a strong dollar
There are only two weeks left in the trading days of 2024. What is the U.S. stock market focusing on?
On Monday, December 16, Goldman Sachs trader Matthew Kaplan summarized the five themes that investors have been most focused on at the Goldman Sachs trading desk recently:
- Significant increase in trading activity in the TMT (Technology, Media, Telecom) sector
- Financials were the sector with the highest net buying last week
- Industrial stocks are under pressure, but utility stocks performed strongly
- Current implied volatility is low, but Goldman Sachs still prefers holding options
- Hedge funds net bought consumer goods stocks across all regions
1. Significant increase in trading activity in the TMT (Technology, Media, Telecom) sector
Kaplan stated that last week, activity in the TMT sector at the Goldman Sachs trading desk significantly increased, with multiple seven-figure trades occurring. Specifically:
Software companies: The market reacted weakly to software companies' earnings reports, with Oracle expected to perform poorly, and Adobe's guidance also falling short of expectations. AI-related companies and open-source database company MongoDB saw declines in after-hours trading following their earnings announcements;
Semiconductor companies and large-cap tech stocks: These drove the rise in U.S. stock indices, with Broadcom's AI product revenue being strong and earnings exceeding expectations;
Ride-sharing industry: There was a divergence in market performance among Google, Tesla, Uber, and LYFT. Reports from the three parties indicated that Google Waymo's market share has increased. However, Uber made positive comments at a meeting, stating that the company performed well in mobility bookings and did not see any signs of slowdown in the San Francisco market where Waymo operates;
Others: Software company Adobe fell 11% due to its enterprise market annual recurring revenue (ARR) growth falling short of expectations and cautious guidance; networking systems, services, and software company Ciena dropped 5% due to weak profitability.
2. Financials were the sector with the highest net buying last week
According to Prime Brokerage data, last week, financials were the sector with the highest net buying, primarily driven by bullish buying. Among them, insurance, consumer finance, and capital markets were the sub-sectors with the highest net buying, while financial services and banking sectors experienced net selling. The long-short ratio for the U.S. financial sector is currently 1.74, ranking in the 89th percentile over the past year and the 20th percentile over the past five years.
Kaplan expressed optimism about the capital markets in 2025, particularly in alternative investments (Alts), followed by investment banking and boutique banking.
Kaplan also mentioned that deposit repricing and liquidity are better than expected, but loan growth is weak (except for Bank of America and Huntington Bank); consumer spending shows signs of recovery in travel and entertainment, while the credit card sector is expected to stabilize or improve in 2025
3. Industrial stocks under pressure, but utility stocks perform strongly
Kaplan stated that industrial stocks faced some pressure last week due to market concerns over prolonged high interest rates in the U.S., widespread tariffs, and a strong dollar.
Utility stocks performed strongly as the sector is more defensive and less sensitive to interest rates. Companies like Tesla and Boeing both saw gains last week, while materials stocks were under pressure, including iron ore company Cleveland-Cliffs, steel manufacturer Nucor, and chemical and ammunition manufacturer Olin.
4. Current implied volatility is low, but Goldman Sachs still prefers holding options
Last Friday, the market failed to achieve the expected 29bp implied volatility, ultimately closing flat. The market saw a decline in spot prices and an increase in volatility during the early session, followed by a gradual decrease in volatility, ending lower.
The options market saw buying interest in the volatility curve, while selling of VIX options was mainly concentrated in VIX options expiring in February.
Kaplan noted that despite the current low implied volatility, Goldman Sachs still prefers holding options.
This week's straddle implied volatility is at 1.03%, including significant data such as the FOMC meeting, GDP report, PCE data, and options expiration date (OPEX).
5. Hedge funds net buy consumer stocks across all regions
Kaplan stated that last week, hedge funds net bought consumer stocks across all regions, with the buying pace being the fastest since August 2023.
Additionally, the allocation weight of consumer stocks in Prime accounts has decreased to -3.0% compared to the MSCI All Country World Index (ACWI), marking the lowest underweight level in five years, compared to -4.0% at the beginning of this year. Prime accounts typically refer to accounts under Prime Brokerage services, which provide comprehensive financial services to large institutional investors such as hedge funds and asset management companies.
