Goldman Sachs hedge fund business director: no confidence in "long and short" but the stock market's full test has not come yet

Goldman Sachs believes that the current market, despite experiencing turbulence, has not yet triggered a true repricing of risks. This week, Tony Pasquariello, head of hedge fund business at Goldman Sachs, emphasized in the latest weekly market outlook that although various risk indicators in the current market seem to be under control, the potential downward impact has not been fully released. Compared to previous market turbulence in history, stock traders in this round of adjustment have not truly faced the test. Pasquariello believes that the most accurate summary of the market situation currently is a statement made by John Arnold, co-chairman of Arnold Ventures, on social media: The attractiveness of the commodity market lies in the fact that the ultimate determining factor is not who says what, but the supply and demand itself. In addition, Pasquariello pointed out that Goldman's data shows that client selling in March was the largest in 13 years, and by entering April, the market as a whole was in a significantly bearish net position. Nevertheless, he still advises to preserve capital and wait for the next clear entry signal. He said: The opportunity to make big money in a crisis often comes after the crisis. Risk premiums are moderate, but the "worst moment" may not have arrived yet Financial website ZeroHedge pointed out that, from various quantitative indicators, the "intensity" of the current market turbulence is lower than expected. Forward volatility, the relative performance of cyclical stocks to defensive stocks, and investment-grade credit spreads have not shown as significant widening as during historical crisis periods. Regarding the current resilience of the market, optimists believe that the market has not lost confidence in the sustainability of US economic growth. Data from Goldman strategist Ben Snider provides evidence that S&P 500 index forward earnings expectations for the next 12 months have been raised by 6% since the peak, and also increased by 3% since the outbreak of conflict, providing fundamental support for the market. However, pessimists believe that the market is just overly complacent, and the real impact has not yet arrived. Goldman's Tony Kim pointed out that the last batch of oil tankers that passed through the Strait of Hormuz at the end of February has just arrived at their destinations in East Asia and Western Europe. The impact of the physical energy supply shortage is starting to truly ferment, and the most explosive convex region in energy prices has yet to be released. Amid rising oil prices, the S&P 500 recorded a strong rebound this week, indicating underlying contradictions within the market, as implied by ZeroHedge. Impending physical energy shortage impact may soon become evident Pasquariello cited data from Goldman's main prime broker indicating that hedge fund clients' selling in March was the highest in nearly 13 years. This means that the trading community significantly reduced long positions in March and entered April with substantial short positions. Pasquariello believes that while this data does not guarantee any directional conclusions and only represents a specific type of market participant, it indicates that the risk-return structure at the tactical level is relatively more balanced than a month ago. He attributes the current core contradiction to the fact that the market is facing the largest oil supply disruption in history, but at the same time, it only takes a major headline to trigger a fierce short cover. He calls this state "strategic ambiguity." In terms of volatility, Pasquariello believes that even though the VIX has peaked, risks at both the downside and upside tails still exist: On one hand, if the crisis continues to evolve into a comprehensive economic growth shock, the downside risk cannot be underestimated; On the other hand, once there is a "step-down" diplomatic or policy shift, the upside tail should not be ignored either. Based on this assessment, he maintains a conservative stance and emphasizes that the priority now is to preserve capital and reserve the ability to respond to opportunities in the next phase. Preserving capital takes priority, wait for the layout window after the crisis Looking ahead, Pasquariello predicts that three major themes will continue to dominate the market after the resolution of risks: Firstly, the AI investment boom will not dissipate. Identifying the trend is easy, but execution is more challenging. Pasquariello states that he will stick to pair trading strategies between AI leaders and laggards. Secondly, the demand for funding in the energy and infrastructure sectors will exceed previous expectations. A similar situation to that of 2022 is re-emerging, where the long-term underinvestment in basic industries and the structural cost of supply chain lack of diversification are being realized, and the strategic value of energy infrastructure will be further highlighted. Thirdly, the resilience of the Japanese stock market deserves attention. The Japanese stock market is both a cyclical asset and highly dependent on energy imports, and is widely held by traders. Despite multiple adverse factors, the performance of the past month remains impressive. Pasquariello believes that the two major themes of attracting capital to Japan, AI and defense, will continue in the next phase. In conclusion, Pasquariello draws inspiration from Darwin's theory of evolution and concludes this week's market observation: Survival does not belong to the strongest or the most intelligent, but to those who can adapt to change. This article is reprinted from "Wall Street News" and written by Bai Yilong; GMTEight editor: Liu Jiayin.