S&P Roadmap — Higher in August, Choppy Sept/Oct, Final Push Into Year-End

The path of least resistance for the S&P remains higher in August, but September and October should be choppier as supply, seasonals, and midterm-related uncertainty rise. That choppiness then sets up a final year-end push, assuming earnings resilience holds and the AI capex cycle does not break credit or rates markets.

The bullish case is not simply “Tech up.” It is broader than that:

• earnings breadth is improving

• the rally has broadened without killing Tech

• hedge-fund risk posture has reset

• CPI did not deliver a hawkish shock

• Fed hike odds have eased

• AI capex remains a powerful earnings and credit-issuance driver

• CTAs are no longer an immediate equity headwind

• gold and Japan add diversification channels

• small caps have already participated, though future upside may be more limited

The main tension is that the same AI capex cycle supporting earnings and infrastructure demand is also increasing duration supply, real-rate pressure, and financing complexity.

1. August: Path of Least Resistance Higher

The near-term case for August upside is strong because the market has passed several important tests:

• Q2 earnings have been better and broader than expected.

• CPI lowered core PCE tracking.

• September hike odds are down to roughly 38%.

• Vol has compressed after the event.

• Hedge-fund exposure is no longer stretched.

• CTA equity selling triggers are further away.

• QQQ / NDX upside structures are being implemented again.

• S&P is consolidating near breakout levels rather than breaking down.

In short:

Cleaner Positioning+Better Earnings Breadth+Benign CPI+Low Vol=August Upside BiasCleaner Positioning+Better Earnings Breadth+Benign CPI+Low Vol=August Upside Bias

The immediate ES/SPX tactical roadmap still looks like:

7800→7820→7845→78937800→7820→7845→7893

provided 7751 holds / is reclaimed and 7800 is accepted above.

2. Q2 Earnings: Breadth Is the Key Feature

The most important earnings statistic is not just the headline EPS growth number. It is the breadth.

Key stats:

• 9 of 11 sectors generated double-digit YoY EPS growth.

• The median stock grew earnings by 14% YoY.

• That is the strongest median EPS growth since the 2021 reopening.

That matters because earlier concentration concerns required one thing to improve:

earnings growth needed to broaden.

And it has.

This is the strongest argument that the rally is broadening through catch-up, not catch-down.

3. Broadening Has Not Come at Tech’s Expense

This is a critical nuance.

The market is broadening, but Tech has not collapsed.

Tech is still the second-best performing sector YTD, up around 23%.

Meanwhile:

• every headline sector is positive YTD

• roughly half of sectors have double-digit total returns

• equal-weight S&P is up roughly 16% YTD

That is a healthy form of broadening.

The best broadening is not:

Tech Down+Everything Else UpTech Down+Everything Else Up

It is:

Tech Still Up+Everything Else Catching UpTech Still Up+Everything Else Catching Up

That is what the tape has been showing.

4. Earnings Deceleration Is Not the Same as a Bear Market

The US portfolio strategy team expects S&P earnings growth to slow from:

• 24% this year

• to 13% next year

That downshift can reduce upside convexity. But it does not imply a bear market.

The historical stat is important:

• over the last 30 years, there have been 13 occurrences of double-digit earnings growth

• the S&P was higher in 11 of 13

• average total return was 14%

So the market can still generate positive returns even as earnings growth decelerates, as long as the growth rate remains double-digit and recession risk stays contained.

The right framing is:

Lower expected returns, not necessarily negative returns.

5. Hyperscalers: AI Capex Still Has Equity-Market Permission

The most important Tech takeaway from earnings was hyperscaler cloud revenue growth and the clearer link between AI capex and ROIC.

MSFT and AMZN helped investors connect:

AI Capex→Cloud Revenue Growth→ROIC JustificationAI Capex→Cloud Revenue Growth→ROIC Justification

As long as that linkage holds, the market is unlikely to force hyperscalers to slow spending.

That means infrastructure providers remain supported:

• semis

• networking

• optical

• data centers

• power equipment

• cooling

• electrical infrastructure

• engineering / construction

• private credit / infrastructure finance

But this also leads directly to more bond issuance.

6. Credit Market: Access Is Fine, Supply Is the Issue

The expected increase in hyperscaler IG issuance is large:

• issuance directly by hyperscalers expected to increase 4-fold from 2025 to 2027

There is no major concern about their access to capital. These are high-quality issuers with strong cash flows.

The issue is not credit quality.

The issue is supply digestion.

Expected issuance:

• US$250bn of bonds this year

• US$400bn next year

That is a lot of duration for the market to absorb, especially when combined with:

• broader AI ecosystem issuance

• data-center debt

• private credit structures

• securitized compute / infrastructure cash flows

• Treasury supply

• already-high real yields

This connects to the rates disconnect:

AI capex can support earnings while simultaneously pressuring real yields through sustained capital demand.

That is the main macro risk for September / October.

7. Equity Supply: Big Nominal Numbers, Manageable Denominator

US equity supply is expected to be:

• US$700bn this year

• including US$225bn of IPOs

Those are record nominal figures.

But the denominator matters:

• US equity market cap is roughly US$80tn

• US$700bn is less than 1% of total market cap

So while supply can create near-term indigestion, especially seasonally, it is not necessarily enough to derail the bull market on its own.

The key issue is timing.

Supply clustered into September / October can create chop even if the annual supply burden is manageable.

8. Hedge-Fund Positioning: Reset, Not Washed Out Completely

The July washout was violent:

• TMT momentum factor fell 38% in 23 trading days

Current GS PB book positioning over a 1-year lookback:

This says positioning is not deeply bearish, but it is also no longer euphoric.

The interpretation:

Investors remain in consensus positions, but the overall risk posture is materially less aggressive than at the end of Q2.

That supports August upside because there is room to re-risk, especially if markets continue higher and vol remains contained.

9. Small Caps: Strong Year, But Punch May Fade

Small caps have had a surprisingly strong year:

• Russell 2000 up roughly 23%

Drivers:

1. good cyclical environment

2. unexpected AI buildout gearing

3. heavy short base at the start of the year

But those drivers may be less powerful from here.

Why?

• cyclical upside is more recognized

• AI-linked small-cap names have rerated

• some AI names have graduated out of small-cap indices

• short-covering fuel is less obvious

• small caps remain highly rate-sensitive

Small caps can still rally on lower yields, especially around CPI / Fed repricing, but the easy phase may have passed.

10. Europe: Stronger Than Expected

SX5E has performed about as well as the S&P this year and sits near record highs.

That is notable because Europe lacks some of the obvious US tailwinds:

• less direct AI leadership

• weaker structural growth

• higher sensitivity to energy

• TTF gas has doubled this year

Yet the rally persists.

Possible explanations:

• valuation support

• shareholder returns

• global cyclicals exposure

• financials strength

• defense spending

• luxury stabilization

• underownership

• better-than-feared earnings

Europe may not have the same upside convexity as US AI, but it has offered a surprisingly durable risk-adjusted rally.

11. Japan: Still a Structural Story

Japan continues to trade well, especially TPX, supported by:

• strong earnings

• shareholder reform

• buyback acceleration

• corporate governance change

• domestic reflation

• under-owned global allocation

• foreign inflows

• improving ROE focus

The buyback point is important:

Stock buybacks this year have already eclipsed all of last year.

That suggests the Japan equity story remains structurally supported, not just tactically momentum-driven.

Japan remains one of the cleaner non-US equity stories.

12. Gold: Technical Breakout and China Demand

Gold remains constructive.

Positive developments:

• downtrend from January blowoff top has broken

• 50-day moving average has been recovered

• China demand is picking up

• PBOC official buying reaccelerated

• China regular imports are surging

• CTA momentum indicators have flipped positive

House view:

• US$4,900 by year-end

This gives gold a role as both:

• a real-yield / Fed hedge

• and a policy / geopolitical / reserve-diversification asset

Gold’s setup is particularly interesting because it can work even when the equity market remains constructive, especially if the driver is China demand and central-bank diversification rather than just falling yields.

13. AI Volatility: The Fever Broke, but Base Vol Is Higher

July was a peak moment for realized volatility in the AI / TMT momentum factor.

The fever broke once enough risk was shed, but the base level of AI volatility is likely higher than before.

Reasons:

1. Technology Rate of Change Is Accelerating

The underlying tech cycle is moving fast. That means winners, losers, and relative advantages can shift quickly.

2. Financing Needs Are Growing

The buildout is increasingly capital intensive and starting to test boundaries:

• hyperscaler bonds

• private credit

• vendor financing

• data-center securitization

• power infrastructure

• AI-lab funding

• possible IPO exits

3. US-China Competition Is Intensifying

The geopolitical dimension raises volatility around:

• export controls

• Nvidia China sales

• domestic Chinese alternatives

• Taiwan risk

• sovereign AI investment

• supply-chain restrictions

So the AI trade may remain strategically bullish but tactically volatile.

14. This Is the Key Market Tension

The market’s core tension into year-end is:

AI Capex Supports Earnings and BroadeningAI Capex Supports Earnings and Broadening

but also:

AI Capex Increases Financing Needs, Real Yields, and VolatilityAI Capex Increases Financing Needs, Real Yields, and Volatility

That is why August can continue higher, while September / October become choppier.

The bull market does not need to end. But the path can become less linear.

15. September / October: Why Choppier?

The expected chop has several drivers:

Supply

• US$700bn equity supply this year

• US$225bn IPOs

• larger IG issuance

• hyperscaler bonds

• AI ecosystem financing

Seasonals

September / October are historically more volatile months.

Midterms

Political uncertainty can affect:

• fiscal policy

• tax incentives

• AI policy

• energy policy

• China policy

• regulation

• IPO timing

• capital-market confidence

Rates

If AI capex continues pushing real yields higher, equity multiples may face pressure.

AI Vol

Higher base volatility in AI leadership can spill into index volatility.

16. Year-End Push Setup

The choppiness can set up a final push into year-end if:

• earnings revisions remain stable

• September hike risk continues to fade

• credit markets absorb supply

• AI capex remains linked to ROIC

• hyperscaler demand stays intact

• Nvidia validates the AI infrastructure thesis

• buybacks resume after blackout windows

• systematic flows remain supportive

• seasonals turn favorable

The path would be:

August Rally→Sept/Oct Chop→Year-End PushAugust Rally→Sept/Oct Chop→Year-End Push

That is a plausible roadmap.

17. Practical Tactical Expression

Near Term: August

Favor:

• S&P upside / breakout exposure

• QQQ call spreads to end-August

• quality cyclicals

• industrials / power / electrical equipment

• profitable AI infrastructure

• Japan

• gold

Be more cautious on:

• crowded high-beta AI

• stretched small caps

• weak balance-sheet AI beneficiaries

• levered data-center models

Sept / Oct

Expect:

• more two-way volatility

• supply digestion

• more sensitivity to rates

• political headline risk

• AI funding scrutiny

• wider dispersion

Use:

• hedges when vol is cheap

• defined-risk structures

• relative value

• quality bias

• cash for dislocations

Year-End

If chop clears without earnings damage:

• re-add beta

• buy AI leaders / infrastructure after resets

• add cyclicals

• participate in Santa / year-end flows

• lean into buybacks and cleaner positioning

I’m staying with the view that the path of least resistance for the S&P is higher in August, followed by choppier September / October trading on supply, seasonals, and midterm risk, before a final push into year-end. The key support is earnings breadth: 9 of 11 sectors delivered double-digit EPS growth, median stock earnings growth is 14%, every sector is positive YTD, and equal-weight S&P is up 16%. This is broadening by catch-up, not catch-down, because Tech remains the second-best sector YTD at +23%. Positioning has reset after the July TMT momentum unwind, with gross, net, and momentum exposure all around the mid-40th percentiles. The AI capex cycle remains supportive as hyperscalers link spend to ROIC, but it also introduces the main risk: rising bond issuance, real-yield pressure, and higher base volatility. That combination argues for August upside, September / October chop, and a year-end rally if earnings and credit remain resilient.

Tony Pasquariello Goldman Sachs - Markets and Macro