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Home News Markets

Goldman Sachs Warns of Risks for Lower-Quality Stocks Amid Market Rally

by Team Lumida
June 25, 2025
in Markets
Reading Time: 4 mins read
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Goldman Sachs Urges Investors to Cut Risk: Is a Selloff Looming?

Source: LeapRate

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Key Takeaways:

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  1. Goldman Sachs Managing Director Louis Miller cautioned that lower-quality stocks, including non-profitable tech and meme stocks, face significant downside risks despite the broader market rally.
  2. Recent gains in these stocks are attributed to short squeezes rather than strong corporate fundamentals, leaving them vulnerable to corrections.
  3. The Nasdaq 100 and S&P 500 hit new highs, driven by easing Middle East tensions, light equity positioning, and balanced Federal Reserve comments on potential rate cuts.
  4. Risks persist from looming trade deadlines, potential tariff impacts on inflation, and slowing growth, which could disproportionately affect growth-sensitive, low-quality stocks.
  5. Goldman sees opportunities to short lower-quality stocks, particularly as their momentum fades and positioning remains elevated.

What Happened?

As U.S. stocks approach all-time highs, Goldman Sachs’ Louis Miller issued a warning about the risks associated with lower-quality stocks, which have been driven higher by short squeezes rather than improving fundamentals. These stocks, including non-profitable tech and meme stocks, have outperformed recently but are now losing momentum.

Miller noted that short squeezes in these areas could soon provide opportunities for investors to press shorts lower, as earnings in these sectors have historically declined during similar rallies. Meme stocks, in particular, remain at “shortable levels,” according to Miller.

The broader market, including the Nasdaq 100 and S&P 500, has rallied on easing geopolitical tensions, light equity positioning, and Federal Reserve comments suggesting a balanced approach to interest-rate cuts. However, Miller highlighted risks from elevated inflation, slowing growth starting in July, and uncertainties around trade talks and tariffs.


Why It Matters?

The warning from Goldman Sachs underscores the fragility of the recent rally in lower-quality stocks, which are more sensitive to economic and market headwinds. Investors chasing these stocks due to fear of missing out (FOMO) may face significant losses if fundamentals fail to support current valuations.

For the broader market, risks from inflation, trade uncertainties, and slowing growth could weigh on sentiment, particularly in growth-sensitive sectors. Miller’s comments suggest that investors should exercise caution and focus on higher-quality stocks with stronger fundamentals.


What’s Next?

Goldman Sachs expects the forward outlook for growth to turn negative starting in July, with elevated inflation potentially leading to slower economic activity. Investors are advised to monitor trade negotiations, inflation data, and corporate earnings closely, as these factors could impact market performance.

Short sellers may find opportunities in lower-quality stocks as their momentum fades, while long-term investors may shift focus to higher-quality, defensive sectors to navigate potential market volatility.

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Disclaimer Important Information This site is for informational purposes only. Information presented on this site does not constitute as investment advice.

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Lumida's website (referred to herein as the "Website") is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of the Website on the Internet should not be construed by any client and/or prospective client Lumida’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet.

Any subsequent, direct communication by Lumida with a prospective client will be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.

‍Lead Capture Forms: By submitting your contact information in the forms on this site, you are not obligated to invest in Lumida's product or services.
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