Why US Stocks May ‘Grind Higher’

The global equity markets are poised to grind higher following a significant momentum unwind in the technology sector and the removal of excess leverage from the AI trade. Ashok Varadhan, co-head of global banking and markets at Goldman Sachs, anticipates a higher-quality rally driven by a resilient nominal economy and the eventual disinflationary benefits of AI infrastructure. While market pricing suggests potential interest rate hikes, rates will likely remain on hold as inflationary pressures from tariffs and geopolitical tensions in the Strait of Hormuz recede. High stock dispersion persists because AI impacts companies differently across the supply chain, yet index-level stability remains robust. Strategic opportunities currently lie in front-end U.S. yields and a bearish outlook on energy, with oil expected to settle below $70 per barrel. Investors should remain invested to capitalize on strong earnings and productivity gains.