Goldman Sachs hedge fund business director: It's time to reduce exposure to US stocks
Goldman Sachs believes that due to factors such as the continuous expansion of the US fiscal deficit and high market concentration, the risk of a stock market pullback is increasing. The bank is calling on investors to remain cautious and disciplined, and to hedge against risks through tools such as put options
Since the beginning of this year, the strong rally driven by large-cap tech stocks has repeatedly pushed the S&P 500 index to new highs. However, Tony Pasquariello, the global head of hedge fund business at Goldman Sachs, warns investors that now may be a "good time to tap the brakes."
In a client report released on Friday, Pasquariello wrote:
It is a bull market, but the likelihood of a pullback is increasing. Therefore, I recommend looking for opportunities to reduce overall portfolio risk to cope with the next stage of political maneuvering in the election.
The S&P 500 index closed at 5460.48 points this Friday, marking 31 new all-time highs so far this year. This AI-themed rebound has benefited from Wall Street's bullish sentiment towards US stocks, strong corporate earnings resilience, and signs of cooling inflation that have strengthened market expectations for the Fed to start cutting interest rates later this year.
Nevertheless, Pasquariello points out several increasing risk factors:
The continuously expanding US fiscal deficit. This year's deficit is expected to reach $1.9 trillion, an increase of $400 billion from expectations four months ago.
Retail and institutional investors continue to increase their stock exposure.
Since April, the rebound has been mainly driven by a few stocks, compared to the first quarter. History shows that as concentration of gains increases, the risk of a pullback also rises.
Pasquariello suggests that given the current low hedging costs, investors can hedge their portfolios through tools like put options while maintaining a high-quality stock exposure.
He also anticipates that as the global election cycle unfolds, market volatility may gradually rise. Currently, the 10-day volatility of the S&P 500 index is only 5%, at an extremely low level.
Nevertheless, Pasquariello emphasizes that this is not a call to "flee the market," but rather a call for investors to remain cautious and disciplined. He points out that as long as the economy and corporate earnings continue to grow, significant sell-offs are rare. At the same time, he remains optimistic about the long-term prospects of US large-cap tech stocks.