Iran war "mysterious and confusing" global technology stocks "exploding and rising"! Goldman Sachs hedge fund business executive: This market is very difficult to deal with.

The collision of geopolitical risks and the technology supercycle is reshaping the trading logic of the current market. Tony Pasquariello, head of hedge fund business at Goldman Sachs, stated in the latest market assessment that despite the S&P 500 index hitting new historical highs again this week, the trading environment remains challenging. Pasquariello cautioned that in the past month, long positions in the market have accumulated significantly, but the buying strength from systematic funds and active management funds has notably weakened, and the fervent demand for bullish call options has also cooled off. Meanwhile, potential inflation risks are resurfacing, and he explicitly advised investors to hedge against these risks by holding long positions in stocks while also allocating to long positions in 10-year inflation-protected bonds and maintaining exposure to Brent crude oil with delayed delivery. Cooling buying momentum, S&P's new high fails to hide trading difficulties Despite the S&P 500 index hitting new historical highs again this week, Pasquariello's assessment of the market's internal structure tends to be cautious. He pointed out that in the past month, overall long positions in the market have significantly accumulated, but the quality of buying interest has quietly changed. Whether it is systematic quantitative funds or discretionary funds, the buying intensity has noticeably weakened, and the previously fervently pursued bullish call options in the market have cooled off. From a structural perspective, Pasquariello cited Goldman Sachs strategist Ben Snider's framework, outlining the potential path for the S&P 500 to rise to 7600 points and conducting a market price assessment of current positions. He specifically noted that as the end of the month approaches, portfolio rebalancing will bring a significant amount of selling pressure on futures, with the market's baton passing to the household and corporate sectors. The ability to handle this pressure will be a key variable. He concluded that it is currently unclear on which side the asymmetrical opportunities lie, therefore maintaining an overall strategy of "spot price rise, volatility increase," but emphasizing that the latter part of this combination requires active and frequent trading operations to realize. Japanese and South Korean stock markets hit historical highs, technology and semiconductor contributions significant The Asia-Pacific markets also delivered impressive performance this week. The Nikkei 225 index, after a 13% slump in March, has fully recovered and hit a historic high; while the South Korean KOSPI has fully rebounded from a 19% decline in March, also setting a new record. Pasquariello specifically pointed out that the ratio of the Nikkei 225 to the TOPIX index has also hit a new high, driven by technology stocks. In particular, the contribution of the semiconductor sector is significant. He recommended investors to maintain exposure to the Japanese market by holding long positions in upside call options, citing the correlation between "spot price rise and volatility rise" often seen in the Japanese market. In South Korea, Goldman Sachs Asia-Pacific strategist Tim Moe currently expects earnings per share growth of up to 220% for KOSPI constituents this year, raising the target price to 8000 points, representing a potential increase of about 24% from current levels. Goldman Sachs Trading Desk tends to capture this opportunity through EWY option spread strategies. Potential inflation threats cannot be ignored, recommend pairing TIPS and long positions in crude oil On the issue of inflation, Pasquariello cited a commonly heard phrase in the commodities market: When you start to lack something, inflation arrives. He pointed out that the AI capital expenditure cycle has led to tightening supply of upstream inputs, and the evolving geopolitical situation may further lead to shortages of various refined products and industrial commodities. He noted that while the likelihood of a repeat of the inflation shock seen in 2022 is small, the challenge of potential inflation risks to risk assets should not be ignored. On a strategy level, Pasquariello recommended pairing the following hedge tools with holding long positions in stocks: 1. Long positions in 10-year inflation-protected Treasury bonds (TIPS) breakeven rate; 2. Holding long positions in forward Brent crude oil. He observed that the mid and far end of the oil futures curve have been particularly strong recently, with forward Brent crude oil surpassing recent highs. AI capital expenditure supercycle, funds continue to flow into power and data center sectors In terms of market fund flows, Pasquariello observed that capital is accelerating towards power infrastructure and AI data center-related targets. He cited Goldman Sachs' "Power Up America" thematic basket, noting that the demand for power has evolved from a "long-term demand narrative" to a "strategic imperative," with a continued inflow of funds over the past two months. At the same time, the recent performance of stocks related to AI data centers in Goldman Sachs' basket is a direct reflection of the "capital expenditure supercycle" in the market. Momentum factors have also performed well in this context. Pasquariello pointed out that despite several unsettling fluctuations in the past few months, sticking to a long momentum factor approach "is undoubtedly the right judgment," and the trend of high momentum versus low momentum pairings in Goldman Sachs' flagship portfolio is "remarkable." In the technology sector, the recent monthly returns of Goldman Sachs' Technology, Media, and Telecommunications (TMT) momentum stock portfolio have also been impressive. Looking ahead, Pasquariello admitted that it is currently not easy to determine which side the market's asymmetry leans towards, so he maintains an overall layout of "spot price increase, simultaneous increase in volatility," but also acknowledges that the latter part will require active trading operations to achieve.