Goldman Sachs trader: The wisest investment is not certainty (bonds), but the power to shape the future

Goldman Sachs' top macro trader throws out a heavy viewpoint, stating that the "trend-following" strategy is no longer effective, and one must learn to interpret "macro turning points" in real-time.

Recently, Goldman Sachs senior macro trader Paolo Schiavone stated that the market has shifted from the crisis phase in April to the "response phase" to the Federal Reserve's impending interest rate cuts. This macro backdrop is driving a significant upward reassessment of risk assets. He believes that the core driving force of the market is no longer trends, valuations, or mere liquidity, but rather a keen insight into changes in the macro environment.

He noted that especially when investor positioning remains defensive, the "most painful path" for the market will be an upward short squeeze, with the S&P 500 index expected to reach the "Goldilocks" range of 6400-6700 points.

This Goldman Sachs trader pointed out that the dominance of systematic macro strategies is waning, with assets under management declining by about one-third from their peak. Market behavior is becoming more reliant on subjective judgment and position allocation rather than programmatic trend following.

According to Schiavone, as we move deeper into 2025, the market is shedding its old script and entering a new era dominated by policy shifts, event-driven dynamics, and psychological games.

Macro Environment Shift: From Crisis to Response Phase

Since the stellar performance of systematic macro funds in 2021-2022, the market landscape has undergone profound changes.

Schiavone pointed out that April marked the crisis phase, accompanied by economic slowdown and vulnerabilities in asset classes, while the current phase has entered the "response phase." The global central bank policy shift is accelerating, with the Federal Reserve transitioning from a "wait-and-see" stance in 2024 to adaptive adjustments. The market expects a near-certain interest rate cut in September, with discussions around a July cut as well.

This has led to significantly looser financial conditions, evidenced by declining long-term yields, tightening credit spreads, a weaker dollar, and improving dynamics in real wages.

Schiavone stated that this backdrop supports the upward reassessment of risk assets, with the stock market approaching historical highs, volatility compressing, and high-yield bonds and speculative sectors (such as biotech and laggards in artificial intelligence) showing vitality.

Despite soft housing and some labor data, the loose financial conditions have temporarily overwhelmed these headwinds.

Market Signal Shift: From Trend Following to Contextual Interpretation

During the past era of quantitative easing (QE), liquidity overshadowed fundamentals, and trend-following strategies reigned supreme, with price movements explaining almost everything.

However, Schiavone emphasized that current liquidity is no longer the sole dominant force; fiscal policy, geopolitical factors, and the Federal Reserve's response mechanisms have re-emerged as core driving factors. The market narrative is changing rapidly, price movements are more deceptive, and traders need to shift from automation to real-time interpretation of macro turning points.

The change in market psychology is also reflected in the redefinition of bull and bear markets.

Traditionally, bull and bear markets are defined by a 20% price increase or decrease, but now more attention should be paid to the market response function: when good news lifts the market and bad news is ignored, the market is in a bull phase; conversely, it is a bear phase. Current price signals indicate a bullish tone, but this needs to be interpreted in context rather than purely on momentum This psychological shift poses new challenges for investors—traders who previously relied on technical signals and volatility filters must now adapt to event-driven macro markets.

Schiavone warns that the biggest returns may not come from smooth trends, but rather from capturing changes in central bank positions, turning points in inflation, or shifts in consumer confidence early.

The wisest investment is not certainty, but the future

In this new environment, Schiavone points out that the influence of systematic macro funds has diminished.

It is estimated that their capital has decreased by about one-third from its peak and no longer dominates market flows. Instead, the interaction of policies and narratives, as well as the game of positions and unexpected events, has taken precedence.

He lists the UK, artificial intelligence, China, biotechnology, the Brazilian real, and Bitcoin as investment "elephants," with a particular bet on Bitcoin, believing it represents a profound expression of the new era.

The field related to artificial intelligence also shows strong momentum, with capital expenditures of U.S. mega-cap companies expected to rise from $477 billion from 2022-2024 to $1.15 trillion from 2025-2027, highlighting a strong confidence in future technologies.

For investors, the current bull market is not driven by euphoria, but rather by a sense of "comfort" from loose policies.

Schiavone emphasizes that in this era shaped by beliefs, accelerated by imagination, and destabilized by repeated monetary interventions, the wisest investment is not certainty (bonds), but the power to shape the future.