Source: Wall Street See
Goldman Sachs believes that the risk of a US stock market correction is increasing due to the continuing expansion of the US fiscal deficit and the excessively high market concentration. The bank urges investors to remain cautious and disciplined, and to hedge their positions through put options and other tools.
Since the beginning of this year, the strong rise driven by large-cap technology stocks has repeatedly hit new highs in the S&P 500 index. However, Tony Pasquariello, head of Goldman Sachs' global hedge fund business, reminded investors that now may be a "good time to hit the brakes".
Pasquariello wrote in a client report released on Friday:
This is a bull market, but the likelihood of a correction is increasing. Therefore, I recommend looking for opportunities to reduce overall portfolio risk to deal with the next phase of political gamesmanship in the election.
The S&P 500 index closed at 5460.48 on Friday and has hit 31 historic highs so far this year. This theme of rebound dominated by AI benefited from Wall Street's bullish sentiment towards the US stock market, strong corporate profit resilience, and stronger signs of cooling inflation, which strengthened market expectations for the Fed to start cutting interest rates later this year.
Despite this, Pasquariello pointed out several increasing risk factors:
1. The rapidly expanding US budget deficit. The deficit is expected to reach $1.9 trillion this year, $400 billion more than expected four months ago.
2. Retail and institutional investors continue to increase their stock exposure.
3. Since April, the rebound has been driven mainly by a few stocks, compared with the first quarter. Historical data shows that as the concentration of rises increases, the risk of correction also increases.
Pasquariello recommends that investors use hedging tools such as put options to hedge their portfolios while maintaining high-quality stock exposure, given the current lower hedging costs.
He also expects market volatility to gradually increase as the global election cycle unfolds. The 10-day volatility of the S&P 500 index is only 5% at present, which is at an extremely low level.
Nevertheless, Pasquariello emphasizes that this is not a call to "get out of the market", but rather a call for investors to exercise caution and discipline. He pointed out that as long as the economy and corporate profits continue to grow, large-scale selling rarely occurs. At the same time, he remains optimistic about the long-term prospects of large-cap US technology stocks.
Editor / jayden