After the big drop, U.S. stocks are still not cheap
Goldman Sachs hedge fund research head Tony Pasuariello pointed out that the fundamentals of the U.S. stock market are deteriorating, and the market is still looking for put option strike prices. The S&P is expected to have a price-to-earnings ratio of 18 times, which is at a historical high. Client responses indicate a flow of funds towards sellers, although quick money has sold off long positions, other investors are just beginning to reduce risk. American households have not yet shed risk, and foreign investors hold a large number of long positions, which may affect the performance of U.S. stocks in the coming weeks
Goldman Sachs hedge fund research head Tony Pasuariello has drawn some clear conclusions from this week's U.S. stock market performance:
i. The fundamentals have undoubtedly deteriorated; it is now a matter of degree and duration.
ii. Until the news flow changes, Mr. Market will continue to seek put option strike prices; here, I agree with Rich Privorotsky's view: "To lift the market, we need to see reliable (tariff) exit channels."
iii. An undeniable fact: The expected price-to-earnings ratio of the S&P 500 is 18 times, still ranking in the 81st percentile over 25 years (the market bottomed in 2018 at about 14 times, 13 times in 2020, and 15 times in 2022).
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This week, our clients' reactions have not been subtle: with huge market trading volumes, capital flows are heavily skewed towards the sell side.
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Although fast money has sold off a large number of long positions in recent weeks, continuing into this week, other groups have only just begun to reduce risk.
——That is to say: as the situation worsens, we see long managers starting to bid.
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The focus now shifts to the largest holders of this asset class—American households—who have yet to shed risk.
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In this context, foreign investors hold a significant accumulated long position in U.S. stocks.
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These groups are likely to determine the direction of the U.S. stock market in the coming weeks (as the company buyback window will not open until the end of the month).
