Ceasefire probability at 50%, Goldman Sachs divides investors into three major camps, saying "it's too early to celebrate now."

Driven by expectations of ceasefire negotiations between the US and Iran, the market continues to climb, but Goldman Sachs warns that interest rate volatility is the core threat facing global risk assets at present. It is too early to declare "all clear."

Rich Privorotsky, head of Goldman Sachs One-Delta, stated in the latest client communication that the US's unilateral ceasefire negotiation signals have shifted market sentiment away from escalation expectations. This shift itself is credible to some extent, especially after Vice President Vance got involved.

According to Axios, the US and several regional intermediaries are discussing the possibility of holding high-level peace talks with Iran as early as this Thursday, but are still waiting for Tehran's response. Predictive markets currently show that the probability of reaching a ceasefire agreement before the end of April is about 50%.

Privorotsky stated that he personally tends to believe that "it is still too early to celebrate" and that early negotiations are unlikely to yield lasting results. Meanwhile, the interest rate market is showing clear stress:

The yield on US 2-year Treasuries has risen by about 50 basis points in roughly three weeks, the biggest single rise since the Silicon Valley Bank crisis. The latest US Treasury auction saw weak demand, with the bid-to-cover ratio at its lowest since May 2024 and the tail at its widest since March 2023.

Three Camps: Market Divided on Negotiation Prospects

Privorotsky categorizes the current client base clearly into three positions:

Camp One believes the US's current moves are just delaying tactics and posturing, buying time for potential military escalation before the weekend. They advocate selling into rallies, reasoning "you can't rely on verbal declarations to influence molecules (i.e. actual energy flow)."

Camp Two believes the current negotiation signals represent genuine progress toward a peace framework, and the situation is evolving toward de-escalation.

Camp Three holds a mixed view, thinking military deployments continue alongside negotiations—a "signal + pressure" parallel strategy. Privorotsky himself stands in the third camp: the market was overly pessimistic about whether negotiations could start, but the first round of talks is unlikely to achieve substantive results; both sides' initial demands are far apart and need gradual adjustment.

On the Hormuz Strait issue, there are signs Iran is allowing some conditional passage, essentially "charging for transit," which has eased immediate tail risks to some extent. But this arrangement is structurally unsustainable and keeps the bargaining chip firmly in Iran's hands.

Interest Rate Volatility Is the Core Risk

Privorotsky made it clear that the primary issue for markets now is not equities, but interest rate volatility.

Major central banks like the ECB remain hawkish, while fiscal pressures continue to accumulate. Governments, already strapped for cash, are facing rising defense spending and potential subsidy pressures from high energy prices. He stated, this combination is "poison" for bonds.

The level and speed of rate volatility is unsustainable for risk assets. He emphasized that rates must stabilize for the stock market to function normally.

Against this backdrop, he believes gold sits in its macro environment where it should play a role; recent gold selloffs may offer a better entry point.

Additionally, markets should closely watch the upcoming US 5-year Treasury auction and the performance of Germany's longer-term bonds.

Tactical View: Short-Term Should Tap the Brakes

Regarding sentiment and positioning, the market saw a notable short-covering rally after Trump's Monday tweet, but overall positioning and sentiment remain subdued. The VIX stays elevated around 26, the European volatility index V2X is also high, and there's still considerable risk premium embedded in the market.

Privorotsky noted that the Euro Stoxx 50 index has rebounded about 5% from its intraday low, so tactically, it's reasonable to tap the brakes before the weekend. If the start of talks is officially confirmed tomorrow, it's worth returning to neutral positioning.

The base case is that the first round of negotiations will likely see no real progress, but downside risk has narrowed from last week, as the market has entered de-escalation mode. However, the risk of misjudgment remains high.

He expects the White House to resume pushing the negotiation process early next week, which is the path toward gradual de-escalation.

Structural Perspective: AI Still the Theme, Asia Outperforms US/Europe

From a structural standpoint, Privorotsky believes AI remains the dominant theme, with winners concentrated in hardware, primarily in Asia. He thinks Jensen Huang's direction on AGI is correct, but valuations of growth and tech stocks are indeed compressed, and the leading stock pool is narrowing, not expanding.

Regionally, he favors long exposure to Asia (Korea, Taiwan, Japan), hedged with European positions, and remains cautious on the US overall. Weakness in the software sector will persist; he suggests closely watching IGV (software ETF) for downside breakouts, which will have a systemic impact on broader valuation multiples.

Financials lack appeal due to credit risk and yield curve factors; healthcare stocks are attractive but need rate support. In emerging markets, he sees Brazil as a standout structural long play.

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