Goldman Sachs Hedge Fund Chief: Almost all the institutions I deal with are bearish. Those familiar with spot commodities are more worried. The longer Iran delays, the more the market leans toward short-term investments.

The current market participation difficulty is unprecedented, and the downside risks still outweigh the upside.

Tony Pasquariello, head of hedge fund coverage at Goldman Sachs, pointed out in a recent report that the geopolitical conflicts arising from the situation in Iran have become the primary source of noise in the market, with the intensity of various trading strategies significantly increasing.

He warned that downward pressure remains greater than upward, advising investors to simplify risk exposure and moderately increase cash holdings to be ready to add positions when the situation clarifies.

Pasquariello stated that this conflict is one of the largest oil supply shocks in history, yet the decline in the U.S. stock market has been limited so far, which is concerning in itself.

He cited a colleague saying, “The market is increasingly inclined to short the timeline”—the longer the conflict drags on, the more likely the market will evolve into a true growth panic, rather than just a supply-driven inflation shock.

Tactical Long and Short Strategies Coexist, but Risks Remain Biased Toward Downside

Pasquariello also outlined the current tactical logic for both bullish and bearish positions in the market.

Bullish arguments include:

Nearly everyone in the professional trading circles he interacts with holds a bearish stance, and market sentiment indicators have significantly declined;

CTA systematic strategies have substantially reduced long positions;

Large index shorts have been established;

The RSI of the S&P 500 and NASDAQ 100 has fallen to the lowest level since April of last year;

The outline of the Iran negotiation framework is beginning to take shape.

Bearish arguments include:

Aside from short-term funding, there has not yet been a true capitulation-style sell-off;

The global bond market trends are also unsettling;

The intensity of the conflict has not eased during the critical 48 to 72-hour window;

Practitioners in the spot commodity market are conveying more pessimistic signals.

Pasquariello’s comprehensive judgment is: The technical outlook is tending toward balance, but the broader risk set still leans toward negative outcomes, gap-style surges and drops will continue, and the risk-reward ratio remains unclear, but intuitively, the asymmetry between upside and downside still dominates.

Spot Commodity Practitioners Are More Worried

Pasquariello’s observations during his business trip to Europe further reinforced his cautious stance. He noted that those who understand physical commodities the most deeply are more worried than generalized investors.

The current conflict has caused severe and ongoing disruptions in the circulation of oil, natural gas, and refined products, and has triggered a series of policy restrictions, including export bans, fuel rationing, and mandatory work-from-home requirements. This signifies rising inflationary pressures for corporate operations and increasingly strong negative impacts on economic growth.

The mainstream pricing logic in the market currently views this situation as a supply-driven inflation shock rather than a significant growth shock. This judgment is reflected in the sharp drop in global front-end rates and the relative outperformance of cyclical stocks over defensive stocks.

He recalled that the S&P 500 had fallen 19% from its peak in February 2024 to its low in April, the VIX had soared above 65 during the summer of 2024, the BKX index plummeted 35% during the SVB crisis, and the NASDAQ 100 fell 33% over the entire year of 2022.

“The damage caused by this round of shocks has not yet reached a similar magnitude,” he believes, which does not mean that risks have been released.

European Stocks See Capital Withdrawals, Asian Stocks Perform Relatively Resiliently

In Europe, Goldman Sachs’ prime brokerage data shows that long positions in European stocks accumulated over the past year are being rapidly liquidated. Goldman Sachs has cut its eurozone GDP forecast for 2026 to about half of the level before the conflict and expects the European Central Bank to raise interest rates once in April and June.

The Asian market, however, shows significant resilience. For example, in South Korea, despite continuous foreign selling and a sudden pullback in U.S. storage chip stocks, the KOSPI has still risen about 29% this year.

The Japanese market, under pressure from high commodity exposure, still recorded about a 1% increase in the TOPIX index this week. Pasquariello noted that based on client feedback, South Korea and Japan are the two markets where investor confidence is most robust among all current options.

Tail Risks Remain High, Cash Holdings Recommended

Pasquariello summarized all of the above judgments in four words: Tail risks are high.

He pointed to the convergence of the forward P/E ratios of NVIDIA (NVDA) and ExxonMobil (XOM) as a hallmark of the times, believing that this signal itself indicates a deep structural change in the current market.

“I still believe there is no reason not to simplify risks, moderately increase cash holdings, and be prepared to quickly increase investments on the clearer side of the situation— I know it’s easier said than done,” Pasquariello wrote.

Risk Disclaimer and Disclaimer Clause

        The market carries risks, and investment should be cautious. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investing based on this is at your own risk.