Goldman Sachs Hedge Fund Head Warns: Bond Market is 'Intimidating' Stock Market

The head of Goldman Sachs' hedge fund coverage business, Tony Pasquariello, begins his latest report with a straightforward statement: the bull market pattern remains unchanged, and the main trend of the S&P 500 continues upward. He anchors this judgment on the fundamentals of earnings - the S&P 500's earnings per share for the first quarter grew by 26% year-over-year, and the 12-month forward earnings estimates have doubled since before the COVID-19 pandemic, with double-digit growth momentum expected to continue in the short term.

The AI capital expenditure supercycle is a core theme that Pasquariello repeatedly emphasizes. He believes that the market continually underestimates the scale of this trend, and Nvidia's recent decision to significantly increase its dividend from 1 cent per share to 25 cents has directly driven the jump in the S&P 500 dividend swap futures expiring in 2028, further confirming the market's confidence in long-term earnings prospects.

However, he is noticeably cautious about the short-term trend. The S&P 500 has risen for eight consecutive weeks, and the Nasdaq 100 Index's risk-adjusted return rate has recently reached one of the highest levels in 40 years. At the same time, the market has recently shown a clear trend of leveraged buying, with substantial funds flowing into leveraged semiconductor ETFs, short-term call options on highly elastic individual stocks, and hot thematic basket products.

The bond market is what alarms him the most. Pasquariello直言不讳ly states that the current trend in the bond market "usually begins to unsettle the stock market," which is a key reason for his cautious stance on the summer market. He expects realized volatility to rise, and the probability of the market experiencing "air pocket"-like sharp increases and decreases will also increase accordingly.

On the operational level, he advises investors to maintain a preference for liquidity, to maintain a "long delta, long volatility" structure in their asset portfolios, while hedging long stock exposure with global bond shorts. The core logic is: be long in the big direction, but the road in the summer will be more bumpy than in the past few months.