Goldman Sachs: Risk Balance Still Tilts Bullish, but Summer Volatility Is Inevitable
Claire Weston
Goldman's hedge-fund coverage head Pasquariello keeps his S&P 500 year-end target at 8,000, arguing all YTD gains come from earnings — not multiple expansion — but the two-month rally is the strongest in nearly 50 years on a vol-adjusted basis, and he recommends hedging with puts through summer.
Why does the risk balance still favor the bulls?
All of the S&P 500's YTD gains come from earnings growth, not valuation expansion. This means → the rally is built on real profit, not speculative re-rating.
Historically, after years when EPS growth exceeds 10%, the S&P 500 rises in the following year 12 out of 13 times.
Additional tailwinds: strong nominal GDP growth, loose financial conditions, and US households — the largest holders of equities — have not pulled out.
Pasquariello adds that markets are in a once-in-a-generation capex super-cycle that could evolve into a productivity super-cycle. In plain terms = companies are spending massively on equipment and capacity, and that investment may eventually lift output efficiency across the economy.
If the view is bullish, what are the near-term worries?
The two-month rally is the strongest in nearly 50 years on a volatility-adjusted basis — statistically very hard to repeat.
The speculative community has added significant exposure, heavily concentrated in high-leverage, high-concentration names, while fresh equity supply keeps hitting the market.
Last quarter the S&P 500 posted 27% YoY earnings growth; Pasquariello questions whether the second derivative — the rate of change of that growth rate — can hold. In plain terms = absolute profits are still rising, but the "acceleration" may be fading.
Inflation remains well above target, creating a policy dilemma for the Fed and squeezing real household income growth.
What are the Philadelphia Semiconductor Index and Korean equities warning about?
The Philadelphia Semiconductor Index (SOX) had stretched to its widest deviation from the 200-day moving average since early 2000. This means → the chip sector's short-term gains have far overshot the medium-term trend, building mean-reversion pressure.
Korean equities fell 8% in a single session again, showing that reversion is already underway in some markets.
This reflects a broader pattern: even with an intact uptrend, individual sectors and markets can release overbought pressure at any time.
What does "long delta plus long volatility" actually look like in practice?
Delta — a measure of how sensitive a position is to moves in the underlying price. "Long delta" simply means keeping a bullish equity position.
At the same time, buy 3-month, 25-delta S&P 500 puts at a cost below 2% of the spot price. In plain terms = spend less than 2% to buy an insurance policy that pays off if the market drops sharply.
This means → Pasquariello is not calling for a reduction in exposure. He is maintaining market positioning while using structural hedges to create a buffer against summer shocks and gap moves.
What does the year-end 8,000 target depend on?
First condition: earnings growth must sustain a positive second derivative off the 27% base — growth doesn't need to accelerate, but it cannot turn negative.
Second condition: the inflation path must allow the Fed to stay on hold without tightening financial conditions.
Pasquariello also recommends pairing equity longs with global fixed-income shorts. This signals his view that rate risk exceeds equity risk — bonds may come under pressure before stocks do.
Content is for reference only, not financial advice.