Goldman Sachs Flags Risks Beneath Tech’s Melt-Up Rally

Markets are in a holding pattern ahead of upcoming consumer price data, but tech stocks continue to dominate. The Nasdaq-100 is up 13% for the quarter, far outpacing the S&P 500’s 7.6% gain. Once-dismissed names like Nvidia, Meta, and Tesla have surged into double-digit territory.

But Goldman Sachs is urging caution. In a note to clients, Peter Callahan, the firm’s technology, media, and telecom specialist, describes the Nasdaq-100 as being in “melt-up mode,” with six gains in the past seven sessions. He attributes the rally to upbeat U.S.-China trade discussions, improved economic indicators — including stronger small business sentiment — and robust earnings, notably from Taiwan Semiconductor.

Goldman’s U.S. Financial Conditions Index has dropped near its yearly lows, indicating easier borrowing conditions for companies. Yet despite the positive momentum, Callahan highlights signs of instability.

For example, Goldman’s TMT momentum pair trade — which bets on top tech winners while shorting laggards — has fallen 7.5% in just six days, underperforming the Nasdaq-100 by 850 basis points. Meanwhile, the Cboe Volatility Index (VIX) continues to decline, possibly understating underlying market risk.

Callahan also points to weakness in recent market leaders like Netflix, Duolingo, Sea, Verisk Analytics, Spotify, Broadcom, MercadoLibre, and Carvana — all of which have posted three straight days of losses.

Even traditionally stable “quality” stocks like Costco and GE are starting to underperform.

He notes several emerging shifts: small-caps outpacing large-caps, cyclicals gaining over defensives, and a rebound in unprofitable tech. These trends come as markets prepare for a potential information vacuum heading into quarter-end, following key catalysts like CPI data, earnings from major TMT names, and updates on U.S.-China trade relations.