Why US Stocks Could Climb Higher

Market Volatility & Sentiment

• John Flood (Head of US Equity Sales Trading, Goldman Sachs) characterizes the current environment as "buy dip mode," anticipating continued volatility as the Russell Index rebalances begins tomorrow.
• A record-breaking trading session occurred a week prior, with 34 billion shares traded across all U.S. equity exchanges, surpassing the previous record set on "Liberation Day" in 2025.
• This volume reflects portfolio rotation activity across retail, institutional, and corporate investor cohorts, coinciding with the New York Knicks parade which drew 2 million attendees to Manhattan.
• The general trend is identified as higher, with dips presenting solid buying opportunities despite near-term technical headwinds.

Supply Dynamics: IPOs, Buybacks, and M&A

• June saw two high-profile IPOs totaling $140 billion in notional value, representing the first and second-largest primary capital raises in recent history; the market absorbed this supply without negative reaction.
• Institutional demand for these offerings was significant, while retail investors remain the most consistent buyer of stocks this year, an activity accelerating alongside major IPOs.
• Corporate buyback activity has broadened beyond the "Magnificent Seven" to include mid-cap and smaller-cap companies, with 50–60 active programs on the buyback desk compared to 10 two years ago.
• Flood predicts a record year for share repurchases in terms of both notional value and the number of participating companies, even if some Magnificent Seven names pause activity.
• A strong M&A environment continues to offset issuance, with the "broader bid" in buybacks serving as a positive market signal.

Sector Themes & Stock Rotation

• The primary thematic focus remains on semiconductors and semi-equipment, with heavy exposure and crowding in Asian markets, specifically Korea and Taiwan.
• Despite crowding risks, the trend for semis and memory chips is expected to continue higher, potentially driving further volatility.
• Some MAG7 stocks may offer attractive entry points as hedge funds short the "MAG6" complex to fund positions in semiconductors and new issuances.
• Three semiconductor stocks have now individually surpassed the $1 trillion market cap mark.

Macroeconomics & Interest Rates

• The market is currently pricing in 40 basis points of rate hikes between now and year-end, a factor Flood identifies as the primary risk capable of breaking the current market rally.
• Flood views the recent June Fed meeting as hawkish but aligns with Goldman Sachs' top economists who do not expect an actual rate hike before year-end.
• A decision to hold rates by the Fed could be interpreted by the market as a de facto cut, which would be bullish for equities.
• High inflation and unexpected rate hikes remain the number one concern regarding potential market correction.

Earnings & Earnings Momentum

• Earnings growth is cited as the fundamental linchpin of the current bull market.
• Q1 earnings showed median growth of 14%, one of the best quarters in decades.
• Median expectations for Q2 are 9% year-over-year growth; meeting or exceeding this threshold is viewed as sufficient to support the broader market advance.
• Strong earnings momentum is the primary driver behind stocks hitting all-time highs.

Forward-Looking Statements & Strategy

• The S&P 500 has a realistic chance of breaking above the 8,000 mark in the near term, supported by technical tailwinds and fundamental earnings strength.
• The "favorite trade" for the remainder of the year is to maintain exposure to high-momentum sectors, specifically semiconductors, semi-equipment, and Asian markets (Korea, Taiwan).
• A potential near-term market headwin involves pension fund rebalancing next week as portfolios are tweaked, which could cause early weakness but create a buying opportunity.
• Flood expresses a bullish preference for "working club" (USA) picks for the upcoming World Cup, coinciding with the Fourth of July holiday week.
• The transcript notes this material contains forward-looking statements and does not constitute a recommendation to buy or sell securities.