US equities are caught in a rare internal split. Yields are surging, market breadth keeps deteriorating, and credit spreads are widening, yet the S&P 500 remains unmoved. Bulls and bears are locked in a stalemate, and market sentiment is growing increasingly tense.

On Wednesday, Rich Privorotsky, head of Goldman Sachs' single-delta trading desk, said outright that the pace of the rise in US Treasury yields "has become too severe to ignore," with the one-month increase in real rates among the worst levels since 2013. He warned that the surge in rate volatility is compressing Wall Street's capacity to intermediate risk, and that the pressure on equities is far heavier than what the index surface suggests.

At the same time, quarter-end rebalancing pressure is approaching. Goldman Sachs estimates that pensions will sell nearly a record $33 billion of stocks by the end of this month, while CTA systematic strategies will also net sell more than $5.3 billion of Russell 2000 futures over the coming week. The two waves of selling pressure combined are making the market's direction even more uncertain.

BTIG strategist Jonathan Krinsky said his conversations with clients "have been largely the same over the past few weeks, but the frequency and anxiety level are rising every day." There is only one core question: the divergence between market breadth, the path of rates, and the S&P 500 is no longer sustainable, but no one can be sure in which way it will converge.

A Firm Index Masking Deep Internal Damage

The S&P 500 has barely moved over the past month, but beneath that calm surface, structural damage is accelerating.

Krinsky noted that while the S&P 500 was broadly flat over the past month, the median stock has fallen 4.5%. The index's stability has depended entirely on a roughly 10% gain in the semiconductor sector to offset the weakness. The Nasdaq 100 has likewise posted almost zero gain since mid-August, yet only 10 of its constituents have risen more than 10%, while as many as 23 have fallen more than 10%. The strategy of "buy breakouts and chase momentum" is failing, and instead more stocks are undergoing larger and more sustained declines.

The performance of mid-cap stocks is especially worth watching. Mid-caps have quietly fallen below their 200-day moving average and are down more than 8% from their recent highs. At the same time, the number of New York Stock Exchange stocks hitting new lows has exceeded the number hitting new highs for 10 consecutive trading days, a signal that historically has often preceded broader market stress.

Goldman Sachs' Privorotsky also confirmed this assessment: "The pain beneath the index is clearly visible—small caps, financials, and other rate-sensitive sectors are under pressure far beyond the surface calm shown by tech leaders."

Goldman Sachs: The Pace of Rising Rates Has Crossed a Critical Line

In the current market debate, Goldman Sachs' judgment is particularly important. Privorotsky made clear that equities had previously "held up impressively," but the pace of the rise in real rates has triggered alarms.

Goldman Sachs' analytical framework shows that when rates rise by more than two standard deviations, stocks usually react—the key is not the absolute level of rates, but the speed of the increase. That threshold has now been breached. The one-month rise in real rates ranks among the worst ranges since 2013.

Privorotsky also observed a "peculiar price behavior asymmetry": when oil prices and rates improve together, rate risk barely reacts; but once oil prices rise, rates immediately come under pressure. He believes that 5-year and 10-year inflation expectations are still tracking energy price swings, but a considerable share of the current rate shock now comes from higher real rates rather than inflation expectations.

His conclusion was concise and forceful: "I can be extremely optimistic about AI and the speed of its development, but right now, unless the energy and rate problems are resolved, that optimism is almost meaningless." The logic chain is clear: suppressing oil prices helps push rates lower, and once rates stabilize, broader room for an equity recovery can open up.

Quarter-End Rebalancing and CTA Selling Pressure—A Double Wave of Selling Nears

Beyond fundamental pressure, technical selling pressure is being released in a concentrated way at quarter-end.

Goldman Sachs estimates that pensions need to sell about $33 billion of stocks in total at month-end and quarter-end (about $11 billion at month-end and about $22 billion at quarter-end), and buy an equivalent amount of bonds. This scale ranks in the 97th percentile of all buy-and-sell estimates over the past three years, and in the 98th percentile going back to January 2000, close to a historical extreme.

Meanwhile, Goldman Sachs' CTA model shows that in a flat-price scenario, systematic strategy managers will net sell about $5.3 billion of Russell 2000 futures over the coming week, one of the largest selling estimates of the past six years.

Privorotsky said he was "tactically tempted" by this, believing that quarter-end and month-end factors should support duration assets. But he also acknowledged that the core contradiction in the current situation is this: between pension rebalancing bond buying and CTA equity index selling, which side will "blink first" before quarter-end?

A Bull-Bear Stalemate: Who Will Blink First?

In Krinsky's view, the essence of the current market is a bull-bear standoff, and neither side has yet been proven right.

The bull case is that market breadth is being thoroughly washed out, a sharp upward repair could occur at any time, and rates will also fall rapidly at some point. The bear case counters that breadth keeps deteriorating, yields keep climbing, and credit spreads keep widening, so the S&P 500 cannot remain insulated for long.

Krinsky himself leans bearish, but he added one tactical exception—utilities (XLU). He pointed out that after RSI falls below 35, XLU has risen over the following five trading days 100% of the time, with an average gain of 2.7%, and the current risk-reward ratio is attractive.

His final judgment is that this divergence will not converge gently in the way bulls hope: "We think this will not end until those last holdouts finally capitulate and break lower."

The credit market has already begun to show cracks that equity volatility refuses to price—high-yield credit default swaps (HY CDX) have risen to their highest level since April, when the VIX was 19.23, far above the current 16.35. This divergence may be the clearest warning of where things go next.