Tactical Short: Expensive Defensives and Staples

Goldman Sachs recommends a tactical short on expensive Defensive stocks and Staples (GSXUSTAP) due to extreme valuations, lagging earnings, and a loss of diversification benefits relative to AI. The desks suggest utilizing 1-month put spreads for execution.

Key Takeaways

• 1.Defensive stocks and Staples (GSXUSTAP) are candidates for tactical shorts due to historical overvaluation and lagging earnings growth.
• 2.The diversification benefit of Defensives has eroded as their correlation with AI has broken down, specifically failing to provide protection during AI downturns.
• 3.Staples positioning is stretched, with shorts at 4-year highs and the group trading at a premium versus historical discounts.

Table of Contents

• Correlation of Expensive Defensives to AI has broken down
• SPX ex AI has been uncorrelated to AI since 2023 except during times of widespread equity moves (e.g. Liberation Day)
• Additional Disclaimers
• Notice to Australian Investors
• Notice to Brazilian Investors
• Notice to Mexican Investors
• Notice to New Zealand Investors
• Notice to Swiss Investors

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