Head of Goldman Sachs Hedge Fund Business: Almost all the institutions I’ve interacted with are bearish; those who understand spot commodities are even more worried. The longer Iran drags on, the more the market tends toward short-term investments.

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The difficulty of market participation in the current situation is unprecedented, and downside risks still outweigh upside risks.

Tony Pasquariello, head of Goldman Sachs’ hedge fund coverage business, pointed out in his latest report that the geopolitical conflict triggered by the Iran situation has become the primary source of noise in the market, with increased intensity of speculation among various trading strategies.

He warned that downside pressure remains higher than upside, urging investors to simplify risk exposure and moderately increase cash holdings, in order to be ready to ramp up positions when the situation becomes clearer.

Pasquariello stated that this conflict is one of the largest oil supply shocks in history, yet the U.S. stock market has so far suffered limited declines—a phenomenon that in itself warrants caution.

He quoted a colleague as saying, “The market is increasingly inclined to short time”—the longer the conflict drags on, the more likely the market is to turn into a real growth scare, rather than just a supply-driven inflation shock.

Tactical bullish and bearish cases coexist, but risks remain skewed to the downside

Pasquariello also outlined the current tactical bullish and bearish logics in the market.

Bullish factors include:

Almost everyone in the professional trading circles he interacts with holds a bearish stance, and market sentiment indicators have dropped sharply;

CTA systematic strategies have significantly reduced long positions;

Large index short positions have been established;

RSI for the S&P 500 and Nasdaq 100 has fallen to the lowest level since April last year;

Initial contours of the Iran negotiation framework are emerging.

Bearish factors include:

No true capitulation-style selling has happened yet, apart from short-term funds;

The global bond market is also worrying;

The intensity of the conflict has not eased within the crucial 48-72 hour window;

Participants in the spot commodity market are sending more pessimistic signals.

Pasquariello’s overall judgment: Technically, the market is toward balance, but the broader collection of risks remains skewed toward negative outcomes. Gapping up and down will continue, risk-reward ratios remain unclear, but intuition suggests asymmetry between up and down dominates.

Spot commodity participants are more worried

Pasquariello’s observations during a business trip to Europe further reinforced his cautious stance. He noted that those most knowledgeable about physical commodities are more concerned than general investors.

The current conflict has caused severe and sustained disruptions in the physical flow of crude oil, natural gas, and refined products, triggering a series of policy restrictions—including export bans, fuel rationing, and mandatory work-from-home requirements. This means rising inflationary pressure for business operations, and a growing negative impact on economic growth.

The mainstream pricing logic in the current market treats the situation as a supply-driven inflation shock, rather than a major growth shock. This is reflected in the sharp fall in global front-end interest rates, as well as the outperformance of cyclical stocks relative to defensive stocks.

Looking back at history, he pointed out that the S&P 500 once fell 19% from its high in February 2024 to its low in April; in the summer of 2024, the VIX soared above 65; the BKX index plunged 35% during the SVB crisis; Nasdaq 100 fell 33% over the whole of 2022.

"The damage from this shock has not yet reached similar levels," he believes. "But that does not mean risks have been released."

European stocks see capital flight, Asian stocks are relatively resilient

In Europe, data from Goldman Sachs prime brokerage shows that long positions in European stocks accumulated over the past year are being rapidly unwound. Goldman lowered its Eurozone GDP forecast for 2026 to around half its pre-conflict level, and expects the European Central Bank to raise rates in both April and June.

Asian markets are showing clear resilience. For example, despite continuous foreign selling and a sudden correction in U.S. memory chip stocks, Korea’s KOSPI is still up about 29% for the year.

Japan’s market, under the pressure of high commodity exposures, saw the TOPIX rise about 1% this week. Pasquariello noted that from client feedback, Korea and Japan are the two markets where investors retain the most medium-term confidence among all current options.

Tail risks remain high, recommends increasing cash holdings

Pasquariello summarized all of the above with four words: Tail risk is high.

He cited the convergence of the forward P/E between Nvidia (NVDA) and ExxonMobil (XOM) as a sign of the times, noting that this in itself signifies profound structural shifts in the current market.

"I still believe there’s no reason not to simplify risk, moderately increase cash holdings, and be prepared to quickly ramp up positions when the situation clarifies—though I know it’s easier said than done," Pasquariello wrote.

Risk warning and disclaimerMarkets have risks, investment requires caution. This article does not constitute individual investment advice, nor does it consider the specific investment objectives, financial situation, or needs of any particular user. Users should consider whether any opinions, viewpoints, or conclusions in this article suit their specific circumstances. Invest accordingly, and bear your own responsibility. ```