Goldman Sachs' head of hedge fund business: Has no confidence in "long-short", but the stock market has not yet faced a comprehensive test.

Goldman Sachs believes that despite the recent market volatility, there has not yet been a true re-pricing of risk. This week, Tony Pasquariello, head of hedge fund business at Goldman Sachs, emphasized in the latest weekly market observation that various risk indicators in the current market seem to be under control, but the potential downward impact has not been fully released. Compared to previous market fluctuations in history, stock traders in this adjustment have not truly faced the test. Pasquariello believes that the current market situation can be best summarized by a statement made by John Arnold, co-chairman of Arnold Ventures, on social media: The attractiveness of the commodity market lies in the fact that what ultimately determines the outcome is not who said what, but the supply and demand itself. In addition, Pasquariello pointed out that Goldman Sachs data shows that client deleveraging in March was the largest in 13 years, and by April the overall market was in a significantly large net short position. Despite this, he still advised: the current top priority is to preserve capital and wait for the next clear entry signal. He stated: The opportunity to make big money in a crisis often comes after the crisis. 1. Risk premium is moderate, but the "worst moment" may not have arrived yet Financial website ZeroHedge pointed out that, based on various quantitative indicators, the intensity of the current market turmoil is lower than expected. Forward volatility, the relative performance of cyclical stocks to defensive stocks, and investment-grade credit spreads have not widened significantly compared to historical crisis periods. Regarding the market's current resilience, optimists believe that the market has not lost confidence in the sustainability of US economic growth. Data from Goldman Sachs strategist Ben Snider provides evidence that the earnings expectations for the S&P 500 index for the next 12 months have been raised 6% since its peak and 3% since the conflict broke out, providing fundamental support for the market's improvement. On the other hand, pessimists believe that the market is overly complacent and the real impact has not yet arrived. Tony Kim of Goldman Sachs pointed out that the last batch of oil tankers that passed through the Strait of Hormuz at the end of February have just arrived at their destinations in East Asia and Western Europe. The impact of physical energy supply shortages is now starting to ferment, and the most explosive interval of energy price increases has not been released yet. Despite rising oil prices again in the background this week, the S&P 500 recorded a strong rebound, with ZeroHedge suggesting that this combination itself reflects the deep contradictions within the market. 2. Impact of physical energy shortages may soon become apparent Pasquariello cited data from Goldman Sachs' main brokerage, indicating that hedge fund clients' selling in March was the highest in nearly 13 years. This means that the trading community significantly reduced long positions in March and entered April with significant short positions. Pasquariello believes that while this data does not necessarily lead to any conclusions and only represents a specific type of market participant, it indicates that the risk-return structure at the tactical level is relatively more balanced now than a month ago. He attributes the current core conflict to the fact that the market is facing the largest oil supply disruption in history, but at the same time, it only takes a major headline news to trigger a drastic short covering. He refers to this state as "strategic ambiguity." On the volatility front, Pasquariello believes that even though VIX has peaked, the risks at both the downside and upside tails still exist simultaneously: On one hand, if the crisis continues to evolve into a comprehensive economic growth crisis, the downside risk should not be underestimated; on the other hand, if there is a "step down" diplomatic or policy turnaround, the upside tails should not be ignored either. Based on this assessment, he maintains a conservative stance, emphasizing that the current priority is to preserve capital and reserve the capacity to respond to opportunities in the next phase. 3. Prioritize capital preservation and await the window for positioning after the crisis Looking ahead, Pasquariello predicts that three major themes will continue to dominate the market after the risk is resolved: First, the AI investment frenzy will not dissipate. Identifying directions is easy, but execution is more difficult. Pasquariello stated that he will adhere to pair trading strategies between AI leaders and laggards. Second, the demand for financing in electricity and infrastructure will surpass previous expectations. Similar to the situation in 2022, the structural costs of insufficient long-term investment in basic industries and lack of diversification in supply chains are being realized, and the strategic value of energy infrastructure will be further highlighted. Third, the resilience of the Japanese stock market is worth noting. The Japanese stock market is both a cyclical asset and highly dependent on energy imports, and is generally heavily weighted by traders. Despite multiple unfavorable factors, the performance of the past month is still impressive. Pasquariello believes that the two major themes attracting capital inflows to Japan, AI and national defense, will continue in the next stage. Concluding with Darwin's theory of evolution, Pasquariello ends this week's market observation: Those who survive are not the strongest or the smartest, but those most adaptable to change. This article is a reprint from Wall Street View, edited by GMTEight: Chen Yufeng.