Source: Wall Street See

Before the big drop on Thursday, the US stock market had reached multiple new highs, rising to a level that was considered too high. However, after the lower-than-expected US CPI data was released on Thursday, the upward trend of the US stock market was instantly halted. How to respond next?

Goldman Sachs hedge fund manager Tony Pasuariello pointed out in a recent report that when the US stock market fell sharply on Thursday, there was a clear transition in market style. The Russell 2000 index performed nearly 6% better than the Nasdaq index on Thursday, indicating that many leveraged investors are reducing their positions. However, Pasuariello emphasized that the S&P 500 index still showed significant gains this week, considering the advantages of large technology stocks and investors' reactions to US inflation, which still supports the rise of the US stock market in the future. He doesn't want to be against the still strong upward trend.

However, within this framework, we consider some tactical factors (deterioration of seasonal factors, valuation of US stocks, etc.), and we have reason to take some measures to reduce risks. Therefore, we stick to put our best assets in our pockets and use cheap options to protect them. He also added that the latest inflation data, combined with the rise in unemployment rate and the recent dovish turn of Fed Chairman Powell, paved the way for a rate cut in September.

How is the capital trend of the US stock market? Pasuariello pointed out that the price trend of the US stock market has already explained everything. Hedge funds have turned net buyers since last week and have continued to steadily buy US stocks, both by retail investors and long-term funds. Traders have been trading short-term options, and market participants can better manage risks, which to some extent reduces the actual volatility of the market. Overall, although I am a little worried about the stock market, the current capital trend is still positive.

Will Japan continue to plummet? At the beginning of this week, the Japanese stock market performed well but then fell sharply- similar to the US stock market, but forex fluctuations made the Japanese stock market slightly higher this week. The focus should be on the fundamental changes affecting Japanese stocks next. Pasuariello is relatively bullish about the future performance of Japanese stocks:

(1) During the consolidation period of the Japanese stock market in the second quarter, traders suffered heavy losses. Therefore, compared with the past, the current trading trend is more obvious, and many investors are re-favoring Japanese stocks; (2) This week, the Japanese stock market easily absorbed a large number of dividend stocks being sold off, which is a healthy signal; (3) I won't say that Japanese stocks are very cheap now, but I think it's noteworthy that Japanese stocks have not yet exceeded the high P/E peak of the Abenomics era in 2015, and the fundamentals are much more stable now.

Will the results of the French election affect the global market? Pasuariello gave a surprising answer: the results of the French election are not important and will not have a major impact on the global market, because it reduces some tail risks against the EU (at least for now). If the election result leads to some form of political deadlock, I expect Europe to use various expedients to cope with it.

However, another Goldman Sachs analyst, Rich Privorotsky, pointed out more neutrally that the market seems to take more punitive actions against uncertainty, which will affect economic growth. It is not yet clear whether the French parliament can form a government. For international investors who invest in Europe, they no longer have the patience to wait.

In front of Thursday's big drop, the US stock market had repeatedly hit new highs and reached a worrying level. If you consider tactical factors such as seasonality and valuation, it is reasonable to take action to reduce risk. Keep the best assets in your pocket and use cheap options to protect them.

Will Japan continue to plummet?

Goldman Sachs hedge fund manager Tony Pasuariello pointed out in a recent report that when the US stock market fell sharply on Thursday, there was a clear transition in market style. The Russell 2000 index performed nearly 6% better than the Nasdaq index on Thursday, indicating that many leveraged investors are reducing their positions. However, Pasuariello emphasized that the S&P 500 index still showed significant gains this week, considering the advantages of large technology stocks and investors' reactions to US inflation, which still supports the rise of the US stock market in the future. He doesn't want to be against the still strong upward trend.

Will Japan continue to plummet? At the beginning of this week, the Japanese stock market performed well but then fell sharply- similar to the US stock market, but forex fluctuations made the Japanese stock market slightly higher this week. The focus should be on the fundamental changes affecting Japanese stocks next. Pasuariello is relatively bullish about the future performance of Japanese stocks:

(1) During the consolidation period of the Japanese stock market in the second quarter, traders suffered heavy losses. Therefore, compared with the past, the current trading trend is more obvious, and many investors are re-favoring Japanese stocks;

(2) This week, the Japanese stock market easily absorbed a large number of dividend stocks being sold off, which is a healthy signal;

(3) I won't say that Japanese stocks are very cheap now, but I think it's noteworthy that Japanese stocks have not yet exceeded the high P/E peak of the Abenomics era in 2015, and the fundamentals are much more stable now.

Will the results of the French election affect the global market? Pasuariello gave a surprising answer: the results of the French election are not important and will not have a major impact on the global market, because it reduces some tail risks against the EU (at least for now). If the election result leads to some form of political deadlock, I expect Europe to use various expedients to cope with it.

Pasuariello gave a surprising answer: the outcome of the French election is not important and will not have a major impact on the global market, as it reduces some tail risks against the EU (at least for now).

However, another Goldman Sachs analyst, Rich Privorotsky, pointed out more neutrally that the market seems to take more punitive actions against uncertainty, which will affect economic growth. It is not yet clear whether the French parliament can form a government. For international investors who invest in Europe, they no longer have the patience to wait.

Will the results of the French election affect the global market? Pasuariello gave a surprising answer: the results of the French election are not important and will not have a major impact on the global market, because it reduces some tail risks against the EU (at least for now). If the election result leads to some form of political deadlock, I expect Europe to use various expedients to cope with it.

Before the big drop on Thursday, the US stock market had reached multiple new highs, rising to a level that was considered too high. However, after the lower-than-expected US CPI data was released on Thursday, the upward trend of the US stock market was instantly halted. How to respond next?

Views on the future of US stocks.

Regarding the recent trend of the stock market's 'bad news is good news' reaction, Pasuariello stated that while he usually does not like this kind of black-and-white binary explanation, it cannot be denied that recently the US stock market has shown a pattern of 'data weakness = interest rate cuts = higher risk appetite'. Moreover, the net long position and total risk exposure of hedge funds have been rising recently, which is something to consider.

The Nasdaq Index closed above 20,000 points for the first time last week. At this time, I would like to revisit the previous comment: during the technology bubble in the late 1990s, the Nasdaq reached a record high of more than 5000 points. Then from March 2000 to October 2002, the Nasdaq plummeted by 80%. The claim that the Nasdaq would reach 5000 points again was a mockery of the intoxicated dreams of the bubble era, and 15 years later, it finally returned to this level. Considering this, the current trend of the Nasdaq seems somewhat unusual. This is why we use derivative products to reduce our risk.

Editor / jayden