Author: Zhao Ying
The confrontation between the wave of AI Agents and the rise of US Treasury interest rates is tearing US stocks into two completely different worlds.
This week, Meta released its Agentic AI model, Muse, which surged $220 billion in value in a single week, making the Nasdaq 100 the top performing major stock index. However, at the same time, US Treasury yields continued to rise, pushing interest rate-sensitive assets into a trough - the Russell 2000 index lagged significantly, and the S&P 500 index repeatedly sawed around 7,700 points, which has not been able to achieve an effective breakthrough.
The internalization of the market has reached an extreme level. Excluding AI-related targets, the S&P 500 actually fell about 1% this week; the number of new low stocks on the New York Stock Exchange exceeded the number of new high stocks for nine consecutive trading days, the longest continuous decline since October 2023.
Tony Pasquariello, head of Goldman Sachs' global hedge fund business, characterized the current situation as a "frustrating cat-and-mouse game" between the stock market and the interest rate market, and gave clear advice: if you insist on holding stocks long, you need to short US bonds at the same time to hedge interest rate risks.
AI Agent detonated structural market, market capitalization concentration reached a new high
Meta's Muse model became the biggest catalyst in the market this week. The release of this Agentic AI product has increased Meta's market value by 220 billion US dollars per week, returning the total market value to the 2 trillion US dollars mark, and driving the entire AI industry chain to strengthen - the semiconductor sector has led the demand for hardware driven by the "reasoning economy", and the Agentic AI-related targets have collectively benefited. Goldman Sachs' Agentic AI basket index (GSXUAGNT) followed suit, with the high-beta momentum basket rising for nine consecutive trading days.
Rich Privorotsky, a senior trader at Goldman Sachs, pointed out that Muse is only the first of many entrants, and competitors from Google and OpenAI will emerge in the coming weeks and months. He believes that as large enterprises undertake security, infrastructure and distribution functions, a large number of economic frictions and intermediate links will be eliminated, which is itself a productivity increase, and structurally has the effect of suppressing inflation, and the comprehensive impact on the overall stock market is positive.
It is noteworthy that US equity market capitalization concentration has climbed to historical extremes. Goldman Sachs chief technology analyst Pete Callahan pointed out that there are currently 10 US TMT companies with a market capitalization of more than $1 trillion in the S&P 500, and only three at the beginning of the AI cycle just three years ago.
Significant divergence within the market and the end of “proliferation trading”
Behind the carnival of the AI market is a sharp deterioration in market breadth. This week, the technology sector was a standalone sector, and the energy and financial sectors were both lagging behind; Mag7 (the seven major technology giants) rose almost three times as much as the remaining 493 constituent stocks of S&P. According to data cited by ZeroHedge, "proliferation trading" is dead - the number of new low shares on the New York Stock Exchange has surpassed the new high for nine consecutive days, setting the longest record in nearly three years.
At the same time, there is also a divergence within the AI market. The weakness in AI power-related stocks this week is almost perfectly negatively correlated with the probability of Democrats winning the House of Representatives in the US midterm elections - market fears that existing and future data center construction projects could be put on hold indefinitely once Democrats take control of the House, potentially weighing on US AI infrastructure investment.
In addition, the credit spreads of Hyperscaler have widened significantly this week, while its stock valuations are still hovering high. Goldman Sachs notes that the gap between Hyperscaler's credit risk and Nasdaq's implied volatility has widened to unusual levels, and the gap between the two is alarming.
US Treasury interest rates became the biggest roadblock, and the S&P 7700 pass was repeatedly blocked
The continued uptrend in US Treasury yields was the core variable that weighed on market breakout this week. The S&P 500 index showed signs of an upward breakthrough on Tuesday after consolidating around 7,700 points for two months, but was then "hit head-on" by the bond market and fell back to the original point that night.
Pasquariello described this situation as a "frustrating cat-and-mouse game" between the stock market and the interest rate market: whenever the stock market tried to break through, interest rates jumped, suppressing risk appetite; and the upside of interest rates directly suppressed interest rate-sensitive assets by tightening financial conditions. The Russell 2000 index has been underperforming the S&P 500 for six consecutive weeks, and Goldman Sachs frankly said that small-cap stocks have been sold off by long-term funds and wealth management channels, and the technical side has also broken down.
At the valuation level, research by the Goldman Sachs US equity strategy team shows that there is already a degree of pricing discount in the market for the sustainability of AI infrastructure earnings growth - the median forward P/E for AI infrastructure stocks has fallen from 32 times in April 2026 to 22 times today, and some pessimistic expectations have been digested.
Goldman Sachs: Holdings need to be hedged, breakthroughs still need catalysts
Faced with the above tearing pattern, Pasquariello gave a clear operating framework: to hold significant long exposure to stocks, it is necessary to establish a simple short position in US Treasury bonds to hedge at the same time. He labels speculative long positions in the current market as +3 on a standard scale of -10 to +10, and believes that the overall position is not crowded.
At the same time, he pointed out that the intensity of repurchases is slowing down, the size of new stock issuance is rising, US retail investors tend to wait and see, and the current market structure is not perfect. But he also acknowledged that, given the recent ferocity of interest rates, it was not easy for the stock market to hold on to most of the gains.
Pasquariello concludes that if there is a catalyst for an upward breakthrough in the market, fast money will have to catch up quickly; but until then, the game between the stock market and interest rates will continue, and ZeroHedge adds the last word - "yet".