The bond market is starting to "scare" U.S. stocks! Goldman Sachs' top trader proposes a "simplified market direction framework"

```

The US stock bull market continues its strong growth, but the bond market is sending warning signals. Tony Pasquariello, head of Goldman Sachs’ hedge fund business, presents a "simplified market direction framework" in his latest report, affirming the long-term upward trend while clearly pointing out that the bond market’s movements have started to suppress the stock market, and warning that the summer market may become noticeably more complex.

Pasquariello points out that the S&P 500 has risen for eight consecutive weeks, and the Nasdaq 100 has recently recorded one of the highest short-term risk-adjusted returns in the past 40 years, with the chase for high-leverage products in the market clearly heating up.

Meanwhile, the bond market is evolving in a way that "usually starts to make the stock market uneasy." He expects realized volatility to rise, with increased risks of "air pocket" (bidirectional fluctuation) events in the market.

On the impact side, Pasquariello suggests that investors increase their liquidity preference in asset allocation and maintain overall positions with “long Delta and long volatility,” while hedging equity long exposures with global bond shorts.

The bull market’s main trend persists, fundamentals remain solid

Pasquariello opens by reiterating his consistent stance: this is a bull market, with the main trend clearly upward. He cites the S&P 500’s chart during and after the pandemic, arguing that it demonstrates the continuation of the main uptrend and a recent risk of some consolidation.

From a fundamentals perspective, he lists three core bullish arguments: First, earnings are the fundamental driver for the stock market, and current earnings performance is exceptionally strong—first quarter earnings per share grew by 26% year-on-year (including "other income," mainly reflecting private holdings), and the double-digit growth is likely to continue for some time; second, the AI capital expenditure supercycle is ongoing, with the theme’s scale consistently underestimated by the market; third, capital flows remain supportive, with US households and businesses entering the market daily with buying orders.

He also cites the S&P 500’s 12-month forward earnings expectations, noting that the indicator has doubled since before the pandemic and emphasizing that this was achieved amid a series of macro headwinds. In addition, the S&P 500 dividend swap futures maturing in 2028 saw a marked uptick during Q1 earnings season, surging further after Nvidia raised its dividend from $0.01 to $0.25 per share, also providing positive fundamental evidence.

Short-term technicals overheated as leveraged funds pour in

Despite the clear long-term logic, Pasquariello expresses a distinctly cautious attitude toward the market’s short-term structure. He notes that the S&P 500 has risen for eight consecutive weeks, the Nasdaq 100 recently recorded the highest short-cycle risk-adjusted return in 40 years, and technicals already show some degree of stretch.

At the same time, the market has recently seen a concentrated chase for highly elastic products, including leveraged semiconductor ETFs, short-term call options for leading stocks, and hot theme basket strategies. Pasquariello believes this large-scale increase in leveraged exposures is an important signal of risk accumulation in the market.

He concludes that although the macro backdrop isn’t without complexity, combined with tight technicals and the flooding in of leveraged funds, his intuitive judgment is "the summer market will be more challenging."

Bond market movement exerts pressure, recommends increasing liquidity and shorting global bonds

Of all recent risk factors, Pasquariello regards bond market movements as the most noteworthy variable. He makes it clear that the way the bond market is currently moving “usually starts to make the stock market uneasy,” and provides associated charts for illustration.

Based on the above, he makes three operational conclusions: First, realized volatility is expected to rise, with volatility spreading from the factor level to the index level, and a high risk of "air pocket" events in both directions; second, investors should retain the ability to move flexibly and increase their liquidity preference in their portfolios under this backdrop; third, he continues to maintain an overall position of “long Delta, long volatility,” and recommends hedging equity longs with global bond shorts.

The core logic of this framework is: Long-term trends coexist with short-term risks; investors should neither abandon the bullish direction due to local noise nor ignore the increased volatility risks implied by current bond market signals.

Risk warning and disclaimerThe market has risks and investment requires caution. This article does not constitute personal investment advice, nor does it take into account individual users’ specific investment goals, financial circumstances or needs. Users should consider whether any opinions, viewpoints, or conclusions herein fit their own circumstances. Investments made accordingly are at your own risk. ```