Goldman: Worst Market Sell-Off May Be Over, But Caution Remains
Tony Pasquariello, global head of hedge funds at Goldman Sachs, said that after a volatile week in global markets, the worst of the selling may be over, but investors should “be very cautious about major directional bets.”
The stock market sell-off that began Friday and shocked markets, with the S&P 500 falling nearly 6 per cent in the five trading days of August and the Nikkei 225 falling 10 per cent in August, has left investors trying to determine whether the broad sell-off, triggered by concerns about an economic slowdown in the US and by unwinds of yen-based carry trades, is over. At the same time, investors are adjusting to uncertainty about the Federal Reserve’s expected interest rate cuts and the US presidential election in November.
Tony Pasquariello, in a note on Wednesday, called the week’s market action “a global margin call” and outlined potential paths for the market. He said that risks in the entire trading space may not be fully behind us, and that proprietary trading flows and institutional positioning data do not show a lot of selling, even though they suggest significant risk transfers.
Tony Pasquariello said: “I find it hard to make a big statement about the risk/return characteristics of the S&P 500 right now, so I am going to be very cautious about major directional bets and look to make money in the dislocations.”
He added: “The worst of forced risk reduction is over, but I think the trend is that the selling in the trading space is ongoing. CTA’s and volume control funds may be selling for an extended period of time. I doubt that the small investors will regain confidence until the uptrend is clearly re-established.”