Goldman Sachs trading head: U.S. stock market remains "extremely difficult to operate," recommends buying gold on dips

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Although the S&P 500 index had limited overall movement this week, intense differentiation and factor volatility within the market are challenging every investor's judgment.

Tony Pasquariello, Goldman Sachs’ Head of Hedge Fund Business, stated in the latest macro market report that the current market “remains extremely difficult to navigate,” because momentum volatility is still very high. He recommends closely watching a historical analogy—the typical movement of S&P 500 volatility before the midterm elections.

Pasquariello noted that since July, factor volatility rate has soared and market deleveraging is obvious. The core of investors’ response strategy is "to simplify portfolios and focus risk on the highest conviction positions."

Meanwhile , his view on gold has clearly shifted, believing that a large number of speculative longs have been washed out in 2026, and with central banks restarting gold purchases and prices repeatedly finding support around $4000, now is the right time to build a structural long position.

On market impact, Pasquariello’s outlook covers multiple variables: rising Fed rate hike expectations, continued AI capital expenditure expansion versus concerns about revenue growth disconnect, Iran’s situation pushing Brent crude up by 33% this month. These factors together form potential catalysts for increased volatility in US stocks over the coming weeks.

Beneath index calm, internal market divergence intensifies

This week, S&P 500 index showed limited point-to-point movement, but this masks considerable turmoil within the market.

Pasquariello pointed out that there is a "significant divergence" between individual stocks and the index—the price gap between single stock implied volatility and index implied volatility continues to widen, as shown specifically in 1-month expiry, 25 delta call option comparison data.

He believes this reflects three market themes: demand for single stock options remains strong relative to index options; all types of investors—both institutions and retail—are highly engaged in options markets; and dispersion trading windows are exceptionally rich.

Pasquariello expects this price gap will remain at a high level in the short term.

The realized volatility of momentum factors has also soared, and this phenomenon is not limited to the US market—volatility of Japanese momentum factors has also jumped, reflecting AI-related exposure’s broad global market penetration.

Gold: The time to buy on dips has arrived

Pasquariello’s view on gold is the most unequivocal investment advice in this week’s report. He offers four logic points:

First, since 2026, a large number of speculative longs have been cleared out;

Second, central banks have restarted gold purchases;

Third, the gold price chart shows repeated support around $4000;

Fourth, despite US interest rates rising and the dollar strengthening being short-term resistance, this actually creates an opportunity to increase structural longs on dips—he strongly believes in the long-term logic for this direction, the core basis being the continued upward trend in global government debt burdens.

Goldman Sachs believes the risk in medium-term gold price forecasts is skewed to the upside. The proportion of gold in private investment portfolios remains low, and recent geopolitical events—including Iran’s situation and a broader tense landscape—may accelerate private investors’ diversified allocation demand and suppress market expectations for Western fiscal sustainability.

AI Capital Expenditure: The frenzy continues, revenue linkage still unresolved

The scale and pace of AI infrastructure investment continues to dominate the market narrative.

Pasquariello pointed out that since the start of the year, AI-related credit supply has reached $489 billion, with no sign of slowing. He said, "One should not underestimate the willingness of the largest spenders to keep increasing."

However, Google’s earnings report this week revealed the core contradiction in the market: operating profit hit $41 billion, up 30% year-on-year; cloud revenue grew 82% year-on-year; nearly 90% of Fortune 100 companies use Gemini Enterprise—but huge AI capital expenditure has not been clearly linked to revenue growth, leaving the key question still unresolved.

Pasquariello emphasized that next week’s earnings reports from Microsoft (Wednesday), Meta (Wednesday), and Amazon (Thursday) will be the next critical test—the market needs to see a clear connection between AI investments and revenue growth. Notably, companies related to AI infrastructure are expected to contribute more than half of the S&P 500’s overall earnings growth this quarter, even though the median S&P stock’s expected earnings growth is also around 10%.

Fed and Iran: Two rising external variables

Uncertainty about the Fed’s policy path has visibly increased this week.

Pasquariello pointed out that at the start of the week, market expectations for a July rate hike were unexpected, but by the weekend, the rate swap market had clearly tilted towards a hike—partly because the market is trying to figure out the new chair’s policy reaction function.

He admits to having a "contradictory attitude" toward rate hikes’ impact on equities: on the negative side, tightening monetary policy during an intensive capex cycle is risky, and historically, Fed tightening is often a condition for high-valuation, highly concentrated markets topping out; on the positive side, if rate hikes can anchor inflation expectations and suppress long-term rates, it may not be bad for risk assets.

As for Iran, front-month Brent crude futures have risen by 33% this month.

Pasquariello said the core market worry this week is not just the escalation of military conflict itself, but also the expansion of its scope—the intervention of Houthi forces and Red Sea issues has made the situation more complex. He judges that neither side has achieved its expected goals, and the situation will maintain "controlled escalation" until one side gives in.

Capital Flows & Volatility: Key coordinates for the next stage

On capital flows, Pasquariello thinks the next month’s overall bias is positive.

Three large financing deals totaling $163 billion have been absorbed in the past five weeks, and new capital raising in August is expected to be much less than before. Meanwhile, with earnings season ending, stock buybacks will accelerate significantly—August is historically the month with the highest proportion of buyback spending.

On volatility outlook, Pasquariello specifically points to a historical analogy: the S&P 500’s realized volatility typically tightens around October, just before midterm elections. He said, "One can imagine the market will tighten again this time," though extreme years like 1987 and 2008 remind investors that the election cycle is not the only driver for volatility.

Additionally, Apple’s stock price has recently soared, alternating with Nvidia for the largest market cap among US stocks, but its realized correlation with the Nasdaq 100 index has fallen to its lowest in at least 20 years—this anomaly is also worth market participants’ attention.

Risk Warning and DisclaimerThe market has risks, investment requires caution. This article does not constitute individual investment advice, nor does it take into account individual users’ specific investment objectives, financial circumstances, or needs. Users should consider whether any opinions, views, or conclusions in this article fit their situation. Investing based on this is at your own risk. ```