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Wednesday Aug 6 2025 13:20
2 min
Despite a 30% probability of a U.S. recession sounding like a warning sign, global stock markets are maintaining their vibrancy, raising questions about whether investors are overlooking potential risks. Paolo Schiavone, a macro strategist at Goldman Sachs, suggests that the market may not be looking far enough ahead, which is why it's disregarding recession risks.
Schiavone posits that investors may be focusing more on strong liquidity and structural growth themes like artificial intelligence and fiscal credit expansion, rather than concentrating on the potential slowdown in the labor market. On Wall Street, despite worries about the impact of full-blown tariffs, strong corporate earnings and bets on lower interest rates have propelled stocks near record highs. Investors have also flocked back to tech giants and AI trades, even as data suggests economic growth may be slowing.
Swap traders are now pricing in more than 100 basis points of Federal Reserve rate cuts by mid-2026. With massive issuance of short-term Treasuries pumping liquidity into money markets, cash is abundant. Meanwhile, after the S&P 500 Index rebounded from a tariff-driven sell-off in April, “fast money” investors have poured into the market.
Schiavone says these trend-following investors, or CTA funds, now control most of the “hot” equity flows. This makes the market exhibit signs of short-sightedness, because “their singular playbook (‘let winners keep winning’) leaves little room for fundamental bears,” he says.
The Goldman Sachs trader indicates that due to the prevalence of short-term strategies and suppressed volatility, few are willing to bet against an upward trend that remains intact, suggesting that the path of least resistance is still upward.
Meanwhile, HSBC on Tuesday raised its year-end target for the S&P 500 by more than 800 points to 6400, citing the elation brought on by artificial intelligence and the easing of U.S. policy uncertainty.
“The AI trade is driving tech/AI stocks (which are about half of the S&P 500) higher, and a reduction in policy uncertainty (like tariffs) is driving the ‘rest’ of the market higher,” HSBC analysts wrote in a note.
This article provides an analysis of the current situation in the financial markets and does not provide investment advice. Investors should conduct their own research and consult with a financial advisor before making any investment decisions.
Risk Warning and Disclaimer: This article represents only the author’s views and is for reference only. It does not constitute investment advice or financial guidance, nor does it represent the stance of the Markets.com platform. Trading Contracts for Difference (CFDs) involves high leverage and significant risks. Before making any trading decisions, we recommend consulting a professional financial advisor to assess your financial situation and risk tolerance. Any trading decisions based on this article are at your own risk.
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