Tony Pasquariello, a top trader at Goldman Sachs and head of hedge fund research, said the narrative that has dominated the market has been volatile in recent months, and his fundamental stance has not changed: to minimize risk to asset quality and to "remain vigilant in the hustle and bustle of the month ahead." ”
Pasquariello mentioned that the dominant narrative volatility in recent months include: the explosive rally in tech stocks in July, the value-at-risk (VAR) shock in early August, the inflated moves of the People's Bank of China in September, and the mixed US stocks after the Fed's interest rate cut in September, with Nvidia up 4% and small-cap index Russell 2000 down 1%. There's nothing remarkable about it, he said, but there's clearly a potential pattern to be seen: it's a trader's market where risk/reward has been uncertain for three months, but the S&P 500 has been consistently hitting new highs modestly.
Pasquariello believes this is largely in line with the downside tail, which has been weakened by rate cuts and a very persistent economy, the upside tail is constrained by recent political and geopolitical suspense, and capital flows favor the bulls, with price action suggesting that this is a market that continues to be bought.
Pasquariello mentions the following key market variables.
United States economic growth
Pasquariello believes there has been little progress on this side this week, but he wants to stress that Goldman Sachs' United States economic surprise index is at its highest positive level in the past six months.
Wall Street News mentioned earlier this week that last Friday's non-farm payrolls growth exceeded expectations, rising inflation and Fed tightening fears resurfaced, and after the mixed signal appeared, Wall Street began to discuss "whether good news is really good news" and the United States economy will "not land" argument has reappeared.
Pasquariello pointed out that the performance of the aforementioned Goldman Sachs index is broadly in line with the "no landing" view, which is also reflected in Goldman Sachs' forecast for United States GDP growth: it is expected to grow by 3.2% in the third quarter of this year, 2.1% in the fourth quarter and 2.8% for the full year.
Fed
After the U.S. Treasury market was hit hard last week, Goldman Sachs' interest rate stripping more or less reflected a 25bp rate cut at the November and December Fed Monetary Policy Committee FOMC meetings, which is in line with Goldman Sachs' baseline forecast, and presumably the Fed's baseline forecast.
As a result, equity operators can still assume that the Fed will have an orderly adjustment of the rate cut curve, unlike a large rate cut – again, Pasquariello believes that this is enough to support the main trend.
Capital flows/positions
In the United States specifically, there have been no major changes in capital flows recently – however, there is clearly some ongoing demand within the market (which is the natural law of things).
Looking ahead, what makes Pasquariello nervous is that the trading world, including hedge funds and United States households, is now under intense pressure. In fact, November and December were the best months of the year for share buybacks.
United States consumers
On the one hand, the jobs report is undoubtedly good news for United States consumers; On the other hand, fluctuations in micro data points are often accompanied by a decline in stock prices. Pasquariello also acknowledges this tension:
This makes him feel that he may be more optimistic about United States consumer in the broader market rather than just focusing on consumer discretionary stocks, but I still like the risk/reward profile of the S&P 500 consumer discretionary sector (S5COND).
United States Technology
Pasquariello mentions two key things. One is the flow of money: hedge funds have sold tech stocks for five months in a row, buying aggressively last week, and then buying individual stocks and index futures on tech stocks at a faster pace this week.
The other thing is that, considering Nvidia's price movements with Amazon or Microsoft, there's a lot of dispersion within tech stocks. As a result, the Nasdaq 100 is only 2% below its high. And we are about to enter a pivotal third-quarter earnings period.
United States small-cap stocks
The Fed has been aggressively undermining economic growth, China is stimulating the economy, and U.S. small-cap stocks are underperforming.
Pasquariello believes that the market is clearly showing its strength here – and that there are better options.
United States elections
Pasquariello said he knows that many well-informed people have very strong beliefs and differences about the election results, and he firmly believes that the election results are like flipping a coin on November 5.
In this case, he is curious about how much of the risk premium will be released after the election. If you look at the term structure of S&P volatility, you can see that this tension is likely to persist until the election results are clear.
Japan
There is currently no international capital flowing into Japan, investors have become cautious after the August volatility shock, and there are clearly better investment options since then, but Japan's stock market has still outperformed slightly this week.
Pasquariello remains in favour of core themes that are performing well – particularly buyback baskets and defensive stocks, while avoiding a large directional bullish stance on major indices.
Net-zero carbon emissions postponed
Pasquariello said he saw a report proposing to postpone expectations for net-zero carbon emissions, and that it was the most interesting report he read this week. The report updates the expected pathway to net-zero carbon emissions, launched in June 2021, reflecting the increase in carbon emissions and coal use since the 2022 energy crisis. The report now argues that hydrocarbon assets will have a longer lifespan, that peak oil demand will occur beyond 2030, and that demand for natural gas as a transition fuel will grow until 2050.
Finally, Pasquariello referred to the golden quote he saw this week to the effect that United States profligacy is not necessarily bad policy compared to other options. The United States has been overspending for decades, but the private sector continues to expand, innovate, and create world-leading companies by market capitalization. So United States is subsidizing retiring baby boomers, rebuilding global supply chains with trusted allies, and massively investing in the existential race to artificial intelligence (AI). If this plan does not fail, it is fine, but if it fails, it will be a disaster.
This article is from Wall Street News, welcome to download the APP to see more
![If you want to buy a small SUV with an economical price, you can take a look at these two, which have a lot of space and strong performance[fig]](data:image/gif;base64,R0lGODlhAQABAIAAAP///wAAACwAAAAAAQABAAACAkQBADs=)