Goldman Desk Gamma Squeeze and Trading Strategy

The S&P 500 rally is being sustained by a narrow group of AI-linked mega-caps and a massive call-buying gamma squeeze. However, Goldman Sachs warns that surging global long-term yields are likely to break this momentum loop.

Key Takeaways

• 1.The S&P 500 rally is exceptionally narrow, driven entirely by the 'Magnificent 7' and specifically Nvidia, while the rest of the market is a net drag.
• 2.A historic gamma squeeze with nearly $3 trillion in call notional is forcing dealers to buy stocks, creating a positive momentum feedback loop.
• 3.Rising long-term yields (US 30Y > 5% and JGB 30Y at multi-decade highs) are the primary threat to current equity valuations.

Table of Contents

• Market Breadth Collapse
• The Gamma Squeeze Feedback Loop
• Rates as the Bogeyman
• Trading Strategy: Short Non-Secular Tech and Low-Quality Themes
• Hyperscalers as an Opportunity

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