The Iran war is "shrouded in mystery," global tech stocks are "exploding upward"! Goldman Sachs hedge fund business executive: This market is very difficult to navigate.
The collision of geopolitical risks and the supercycle of technology is reshaping the current market trading logic.
Tony Pasquariello, Head of Hedge Fund business at Goldman Sachs, said in his latest market assessment that despite the S&P 500 index hitting new historic highs again this week, the trading environment remains challenging.
Pasquariello warned that over the past month, market long positions have accumulated significantly, but buying strength from systematic and actively managed funds has noticeably weakened, and the feverish demand for call options has also subsided.
Meanwhile, underlying inflation risks are re-emerging. He explicitly suggests that investors configure long positions in 10-year inflation-protected bonds and delayed-delivery Brent crude exposure while holding equity longs to hedge potential risks.
Cooling Buying, S&P New Highs Can’t Mask Trading Difficulties
Although the S&P 500 index set another new historic high this week, Pasquariello’s assessment of the market’s internal structure is becoming more cautious.
He pointed out that overall market long positions have significantly accumulated over the past month, but the "quality" of buying has quietly changed. Both systematic quantitative funds and discretionary funds are showing weaker buying intensity, and the previous market frenzy for call options is cooling off.
Structurally, Pasquariello cited Goldman Sachs strategist Ben Snider’s framework to outline a potential path for the S&P 500 to rise to 7,600 points and performed a position-by-market-price assessment.
He especially noted that as the end of the month approaches, portfolio rebalancing will bring heavy selling pressure in futures, passing the baton to households and corporate sectors. Whether they can absorb this pressure will be a key variable.
He concluded that it’s not clear which side holds the asymmetric opportunity, so maintains the overall strategy of "spot rises, volatility rises," but emphasizes that the latter half of this combination requires active and frequent trading operations to realize.
Japan and Korea Markets Hit Historic Highs, Tech and Semiconductor Lead
The Asia-Pacific market also delivered a stellar performance this week.
The Nikkei 225 index, after suffering a 13% plunge in March, has fully recovered and reached new historic highs; Korea's KOSPI, rebounding from a 19% drop in March, has also refreshed historic records.
Pasquariello especially pointed out that the Nikkei 225 relative to the TOPIX index ratio has simultaneously hit new highs, driven by technology stocks — especially the semiconductor sector.
He recommends investors maintain exposure to the Japanese market via bullish call options, citing Japan’s typical "spot up, volatility up" linkage feature.
For Korea, Goldman Sachs APAC strategist Tim Moe currently expects KOSPI component stocks EPS growth up to 220% this year, with target price raised to 8,000 points, which implies a potential upside of about 24% from current levels.
Goldman's trading desk favors capturing this opportunity through an EWY option call spread strategy.
Potential Inflation Threats Cannot be Ignored; TIPS and Oil Upside Exposure Advised
On inflation, Pasquariello quoted a phrase from the commodities market:
When you start running short of something, inflation arrives.
He pointed out that the AI capital expenditure cycle has already tightened upstream input supply, and the current evolution of geopolitical dynamics may further cause shortages of many refined and industrial commodities.
He says, although a repeat of the inflation shock of 2022 is unlikely, the risk that underlying inflation poses to risk assets cannot be ignored.
On the strategy front, Pasquariello suggests the following two hedging tools while holding equity longs:
First: Go long the 10-year TIPS (Treasury Inflation Protected Securities) breakeven rate;
Second: Hold bullish positions in deferred Brent crude. He notes the midpoint and far end of the oil futures curve have recently been particularly strong, and forward Brent crude has broken recent highs.
AI Capital Expenditure Supercycle, Funds Keep Flowing to Power and Data Centers
In terms of market capital flows, Pasquariello observes capital is accelerating towards power infrastructure and AI data center targets.
He cites Goldman Sachs’ "Power Up America" theme basket, noting demand for electricity has shifted from a "long-term demand narrative" to "strategic necessity", with inflows maintaining momentum over the past two months.
Meanwhile, Goldman’s AI data center stock basket performance recently is a vivid market illustration of the "capital expenditure supercycle."
The momentum factor is also standing out in this backdrop.
Pasquariello pointed out that despite some unsettling volatility over the past few months, sticking with the momentum factor "is undoubtedly the right call," and Goldman’s flagship high-momentum versus low-momentum pair strategy "is breathtaking."
As for technology, Goldman’s TMT (Tech, Media, Telecom) momentum stock basket also delivered impressive monthly returns lately.
Looking forward, Pasquariello honestly says, it’s not easy to judge which side the market asymmetry favors, so he maintains the overall "spot up, volatility up" layout, but admits the latter part needs to rely on active trading to achieve.
Risk Warning and DisclaimerThe market involves risk; investment requires caution. This article does not constitute personal investment advice nor considers individual users’ specific investment objectives, financial situation, or needs. Users should consider whether any opinions, views, or conclusions herein suit their particular circumstances. Investing accordingly is at one’s own risk.