Goldman Sachs hedge fund chief's "framework for U.S. stocks in the second half": go long, while hedging, continue to focus on technology stocks

Goldman Sachs hedge fund chief suggests: go long on US stocks in the second half of the year while setting up hedging protection, with a focus on technology stocks.

On August 11, according to Wind Trading Desk news, Goldman Sachs' hedge fund division stated in its latest report that last week's performance of US stocks showed market resilience beyond expectations, with the S&P 500 index fully recovering the previous week's losses and the Nasdaq 100 index reaching a new all-time high.

Goldman Sachs hedge fund chief Pasquariello attributed this resilience to sustained AI stimulus, healthy capital inflows, and the decoupling of the stock market from economic performance. However, the bank also pointed out that the structural challenges facing the market cannot be ignored.

US job growth has significantly slowed since the first quarter, and large-scale positioning by the systematic trading community has largely been completed, with liquidity beginning to deteriorate. Pasquariello noted that speculative demand is weakening, and the market will rely more on stock buybacks for support in August.

Based on the current market environment, Pasquariello proposed a clear investment framework:

In a context where technical indicators remain positive but risk-reward dynamics have become erratic, it is recommended to go long on US stocks (with a bias towards technology stocks) while allocating hedging protection, and continue to focus on US technology stocks as a key target.

Surge in AI Spending Drives Technology Stock Performance

The report stated that Pasquariello originally expected the weak non-farm payroll report in July to be a turning point for market risk sentiment, but the market's performance showed strong resilience: the S&P 500 index fully recovered last week's losses, and the Nasdaq 100 index reached a new historical high.

Pasquariello believes this persistence stems from three factors:

First, the market is once again stimulated by AI (for example, Palantir rose 21% last week); Second, although speculative demand is weakening, overall capital flows remain healthy; Third, this once again proves a well-established theory—that the stock market is not a direct reflection of the economy.

It is worth noting that Goldman Sachs emphasized that the second-quarter earnings reports of large US technology companies performed strongly, with significant acceleration in cloud computing, advertising, e-commerce, and core product businesses. AI continues to occupy a central position in market imagination.

The capital expenditure impulse of the four major cloud service providers is "very significant." Historical and expected data show that these companies' spending plans far exceed market expectations, providing strong momentum for the related industrial chain.

Palantir surged again this week by 21%, with CEO Alex Karp stating: "We are very, very optimistic about the United States. This is an American revolution, led to some extent by Ontology, chips, and large language model providers."

However, the price-to-earnings ratio of the Nasdaq 100 index is approaching 30 times, a level that is historically difficult to sustain. Pasquariello believes that while it may take time or consolidation to address this situation, investors should not be overly dogmatic about the valuations of tech stocks considering the potential for earnings growth.

Weak Job Market Raises Concerns

The report states that the significant slowdown in U.S. job growth has become a focal point for the market. Goldman Sachs Chief Economist Jan Hatzius pointed out that the share of tech jobs peaked in November 2022, the month ChatGPT was released, and has fallen below the long-term trend line over the past year.

More concerning is that the unemployment rate for tech workers aged 20-30 has risen nearly 3 percentage points since the beginning of 2024, more than four times the increase in the overall unemployment rate. This indicates that generative AI is beginning to have a more pronounced impact on the job market.

Goldman Sachs' tracking of third-quarter GDP growth expectations is at 1.2%, with a forecast for U.S. GDP growth of 1.8% next year. Pasquariello emphasized that while recent data should not be overlooked, if the predictions of growth returning to trend levels are correct, current concerns should gradually ease.

He cited a framework to explain the current contradictions:

"At the macro level, policies still favor large companies—AI investments, capital expenditure incentives, deregulation, low taxes, and loose financial conditions all support large enterprises. But consumers are under pressure—not in terms of wealth or balance sheets, but in terms of income."

Capital Flows and Market Liquidity Under Pressure

The bank stated that the impulse for investment capital flows is weakening. The systematic trading community has bought a large amount of global index futures over the past few months, and this work is essentially complete; if significant volatility occurs, the asymmetry now leans towards the downside.

The proprietary trading community has also increased long positions, currently calibrated at a level of +7. While retail investors still maintain net buying, the intensity of demand has eased in recent weeks.

The report noted that the market depth and the ease of risk transfer are beginning to deteriorate. A senior commentator described the current environment as a "tense and unstable" trading environment, with daily price movements becoming more indiscriminate, and some obvious misalignments starting to appear.

Goldman Sachs pointed out that in this context, the market will rely more on stock buybacks for support in August.

Investment Framework: Long with Hedging Strategy

Pasquariello maintains his previous portfolio allocation: long U.S. stocks (favoring tech stocks), long value storage assets (gold/silver/bitcoin), slightly short the dollar, and steepening yield curve trades globally. He stated:

"In any given week, certain parts of this portfolio may perform poorly, but as a whole, this approach remains my preferred defensive strategy for 2025." Regarding the outlook for the second half of the year, Pasquariello expects more consolidation in August, and the technical setup in September may be tricky, but he believes the main trend for the second half of 2025 remains upward.

"So, my conclusion is the same as it was two weeks ago: go long while allocating hedges."

He advises investors to continue focusing on the most important targets—U.S. tech stocks