Goldman Sachs hedge fund chief: In a market where "you can make money with your eyes closed," do not fight the bull market, "there's still fuel in the U.S. stock market."

Tony Pasquariello, head of hedge fund business at Goldman Sachs Group, pointed out in a recent report that although signs of overheating have appeared in some areas of the market, investors should not fight against the current bull market trend.

Pasquariello acknowledged that some indicators in the current market are approaching the "red line zone." He observed that certain high-growth sectors have shown a "vertical rise," while subjective investors have begun to chase prices, leading to a surge in demand for call options in the options market. Additionally, he reminded that quarterly options expirations often fuel short-term market trends but may also trigger a "hangover" effect that leads to a subsequent pullback.

However, at the same time, there are stronger bullish reasons in the market. Pasquariello emphasized that the Federal Reserve has clearly indicated its intention to implement a series of interest rate cuts against the backdrop of an accelerating economy, and the stock market has clearly sensed this positive signal. The bullish narrative has not been shaken by last week's Federal Reserve meeting; instead, it has pushed the performance of cyclical stocks to new highs relative to defensive stocks. Meanwhile, U.S. tech stocks continue to release positive news, such as Intel's stock price soaring 23%, and Google's market value also joining the $3 trillion club.

Overall, Pasquariello's final conclusion is "neither to fight against the trend nor to blindly chase prices." He admitted that he does not favor the current position setting and tactical risk-return, and suggested adopting a "responsible bullish" strategy. However, he also acknowledged that the market performance over the past few weeks has proven that this caution may not be aggressive enough, because this has "always been a market where 'irresponsible bullishness' can yield returns." On March 6, 2009, the S&P 500 index closed at 666 points, and more than 6,000 days later, the index closed at 6,664 points this past Friday.

Optimism has not peaked, and there is still room for growth

Despite the market hitting new highs, various dimensions of investor sentiment indicators show that the market's optimism has not yet reached a frenzy level, suggesting that there is still room for new funds to enter. According to Goldman Sachs' Rich Privorotsky, the AAII bull-bear indicator, which measures individual investor sentiment, is currently near zero, far from the extreme optimism zone of +20. Meanwhile, the NAAIM trader exposure survey has remained flat since the summer, and CNN's Fear & Greed Index is only at 61, which does not indicate "extreme prosperity."

Goldman Sachs' own major brokerage business data shows that while the total exposure of fundamental investors has increased, net exposure remains constrained. This indicates that although hedge funds are actively trading to obtain beta and alpha returns, they still show hesitation in chasing prices. Analysis suggests that the main theme of the market in September is that investors have gradually accepted the "Goldilocks" economic narrative. The conclusion is that although bullish positions in the market have increased compared to a few weeks ago, "few are taking excessive risks," which means the market still has the capacity to absorb new funds Behind the strong bullish trend, there is dual support from the Federal Reserve's policies and the fundamentals of U.S. consumption. Pasquariello specifically pointed out that historical experience shows that when the Federal Reserve cuts interest rates against the backdrop of an economic growth rebound, it is extremely favorable for the stock market. The current market is in this rare favorable environment.

At the same time, the resilience of American consumers constitutes a solid foundation for the economy. A recent retail and technology conference hosted by Goldman Sachs conveyed a clear message: U.S. consumption remains robust. Although Pasquariello is concerned about the situation of low-income families, CEOs of U.S. companies closely related to overall consumption generally believe that business activity remains healthy, which aligns with the retail sales data released on Tuesday.

Market Breadth Debate Premature, Strong Driving Force of Technological Innovation

Regarding the debate on market breadth, Pasquariello believes there is no need for excessive concern at this time. He likened this debate to a sports radio talk show—everyone has strong opinions, but many will ultimately be proven wrong. While some indicators (such as the equal-weighted S&P 500 index comparison and the proportion of individual stocks hitting 52-week highs) show that market breadth remains narrow, an undeniable fact is that all 11 primary sectors under the Global Industry Classification Standard (GICS) have posted positive total returns so far this year.

Moreover, the activity in capital markets is closely related to technological innovation. He believes that this year will be remembered as a year when "the pace of innovation underwent a leap forward," with significant progress in hot areas such as robotics, autonomous driving, drones, quantum computing, and satellites. This wave of innovation not only provides upward momentum for individual stocks but also revitalizes the capital markets in September, which is good news for various investors.

The structure of the market and the toolbox of investors are also undergoing profound changes. A striking piece of data is that the assets under management (AUM) of systematic trading options ETFs have skyrocketed from $12 billion to $170 billion in five years. Pasquariello believes this is a positive dynamic for the trading ecosystem, as it provides ample short-term gamma supply for market makers.

In terms of alternative assets, Pasquariello highlighted two trends worth noting. First, if the "insurance value" of global government bonds continues to decline in a risk-averse environment, this will only drive more capital into gold. Second, decentralized finance (DeFi) and traditional finance are accelerating their integration; nowadays, almost all market reviews discuss the price movements of Bitcoin (BTC) alongside stocks, bonds, currencies, and commodities, indicating the increasing mainstream acceptance of digital assets