As the US presidential election enters the final countdown, perhaps Warren Buffett's famous saying has once again proved true: "Be fearful when others are greedy." Recently, Goldman Sachs traders have discovered a rare phenomenon in their careers: when the 'fear index' VIX measuring US stock market volatility is high, clients are unexpectedly bullish on US stocks.

When asked about the fund flows near the end of the year and the trades conducted by clients of Goldman Sachs' entire franchise operation, Brian Garrett, Managing Director of Cross-Asset Derivatives Sales at Goldman Sachs, responded,

"I can't remember a time when the VIX exceeded 22 and yet the entire client base was still bullish... Economic and growth data are strong, people believe inflation is basically under control... The election is a worrisome wall, but a peaceful transition of power along with a recalibration of volatility could potentially trigger another wave of risk trades by the end of 2024."

Garrett mentioned that a common practice heard in conversations with investors is, 'We go long and deploy more capital after the election.' If you are part of the entire camp, you are not alone. The implied changes in the S&P 500 is 2%, Nasdaq 100 is 2.5%, and Russell 2000 is 3.6%. These are reasonable barriers that options buyers need to overcome, so most hedges are done in a delta form.

Garrett believes that the most interesting trades after the election will focus on individual stocks/themes. Different election outcomes will have significant impacts on industries and sectors, but could also lead to relatively flat diversified index trading.

Garrett mentioned that he likes trading steep VIX curves, such as using funds from buying VIX December put options to buy VIX November put options. He also likes capitalizing on the upside potential of gold (Goldman Sachs research remains very bullish on gold) and looks for stocks that can benefit from relaxed regulations or acquisitions under the next government.

Garrett believes that small cap stocks will not repeat the outstanding performance seen after the 2016 election, 'In fact, I believe the 2016 playbook is not going to 'play out' as some may think.'

Goldman Sachs Americas Stocks Executive Director John Flood has found that hedge funds continue to trade as "winners of Republican policies" at an extremely high speed. Flood believes that if Democratic candidate Harris is elected, it will lead to a sudden liquidation of the recently increased risk exposure and put heavy pressure on broader indices, such as s&p 500, causing a rapid 5% drop.

Flood pointed out that 22% of the total assets under management are in mutual funds that ended the most recent fiscal year in October. Earlier in October, Goldman Sachs saw significant tax-related selling among several members of the Tax Loss Selling Basket (GSCBMF24 INDEX). It's worth paying attention to the symbols here because there are some interesting buying opportunities.

Jon Shugar, Goldman Sachs' Cross-Asset Stock Sales Executive, stated that investors are currently trying to reduce total exposure and net exposure size before the election. Post-election, investors express confidence in the upward potential of gold (direct and related mining) and the potential benefits of relaxed financial regulations. Shugar noted that most investors he spoke with hope to increase the risk of US stocks after the election.

Shugar stated that most investors he talked to are looking to increase the risk of American stocks after the election. Regarding the election results, Shugar still believes that the pricing of forex trades is incorrect – either Harris's election leads to a weakening of the dollar, or Trump's election leads to a drop in the euro against the dollar – both possibilities could happen. The biggest issue may be the ultimate direction of long-term interest rates.

Chris Spahr, Goldman Sachs Synthetic Sales Trading Director, mentioned that about a month ago, clients' views were about 'reducing risk' and 'waiting and watching' until the election results were out. Now the situation has completely changed – clients have made decisions, starting to take a stance on Trump trades (shorting the Tariff Basket, going long on the Republican Policy-themed basket, and going long on Cryptocurrency ETFs). With Trump's advantage strengthening, it seems increasingly likely that the GOP's red wave is on the verge of taking over Congress.

Lee Coppersmith, Goldman Sachs Derivatives Sales Managing Director, mentioned that previously, clients were seen focusing on adjusting their portfolios in anticipation of a Republican-dominated election result. The fund flows are now shifting in the opposite direction. Goldman Sachs is seeing increased demand for industries that lean more towards Democratic policies, such as cecep solar energy/wind power and bond proxies. On the other hand, driven by regulatory relaxation and bullish M&A activity, certain financial sectors still hold significant value in the eyes of Goldman Sachs trading desk.

Editor/rice