Goldman Sachs Trader: Avoid this rebound, as greater market risks have not yet dissipated

The brief easing of the US-Iran situation boosted market sentiment, but Goldman Sachs internal traders issued a warning: this rebound is not worth chasing.

The White House signaled a cooling of tensions on Monday night, causing global stock markets to surge and oil prices to plummet. Rich Privorotsky, head of Goldman Sachs’ One-Delta trading desk, characterized this market reaction as “reflexivity” — markets are creating outcomes, not being driven by results. He clearly stated, “I would choose to avoid this rebound.” Meanwhile, Goldman Sachs’ Shreeti Kapa also issued a similar warning, saying the current market is in an “extremely severe risk environment.”

The core consensus of both traders: The volatility compression caused by Middle East tensions is just superficial; deep-seated risks like AI valuation bubbles, private credit pressures, and weakening macro data have not dissipated. The market is only temporarily distracted by geopolitical news.

Geopolitical cooling drives the rebound, but the logic has limitations

Privorotsky believes the logic behind this rebound is simple: political pressure and domestic inflation tolerance determine the US’s capacity to sustain ongoing conflicts in the Middle East. “Midterm election pressures combined with inflation mean the tolerance for prolonged conflict is very low — this shift occurred when oil prices hit $120, not $150.”

He points out that the tail risk of oil prices is rapidly narrowing, and market tolerance for continued conflict is nearly zero. Once oil prices spike, market participants will immediately seek to downgrade their export expectations. Previously held hedges against rising oil prices and falling stocks are rapidly diminishing.

However, Privorotsky also emphasizes that the long-term impact of this conflict cannot be ignored. Iran has demonstrated that it doesn’t need to fully blockade the Strait of Hormuz; credible threats alone are enough to disrupt shipping flows and insurance markets. This “option value” will persist as a structural feature of the oil market, meaning the oil price equilibrium center has substantially risen compared to before. Additionally, the recovery of some offline production capacity will take weeks, and the backwardation structure in futures markets will not disappear in the short term.

Rebound masks deeper risks

Privorotsky straightforwardly states, once volatility resets and hedges are reduced, US stocks haven’t actually fallen much — which is precisely why he chooses to “avoid” this rebound.

The primary risk he highlights is AI: the impact of AI on corporate earnings multiples and terminal valuations remains an unresolved core issue that was temporarily overshadowed by geopolitical concerns. This debate has not disappeared. Related but independent is the pressure on the private credit market — redemption restrictions and asset re-pricing issues continue to weigh on the broader credit system.

Macro data also does not support an optimistic narrative. PPI data came in hotter than expected, CPI data is about to be released, and last week’s non-farm payrolls showed negative growth. Privorotsky states he remains cautious on US risk assets and believes this view is becoming a market consensus.

Regionally, he favors buying emerging markets and Asian assets on dips, and believes the market is severely underpricing the probability of Fed rate hikes. Industry-wise, he prefers defensive sectors such as healthcare, telecommunications, and utilities.

Goldman Sachs Internal Risk List: Top 10 Concerns

Shreeti Kapa’s assessment is more systematic. She lists multiple concurrent risks facing the market: ongoing Middle East conflict, persistent inflation combined with supply shocks, stagnating labor markets, limited Fed policy space, legal chaos around tariffs, pressure on private credit markets, divergence and disruption risks in AI, mismatches in capital expenditure and returns of large data center operators, stranded data center assets, and the historically regular “market weakness before midterm elections.”

Technical factors also add pressure: market makers are in a short gamma state, implied volatility remains high, liquidity is low, and overall positioning remains skewed.

Kapa concludes by noting that all these factors are unfolding in a unique context — since the pandemic, US stocks have experienced an extraordinary bull market, and current valuation levels and market concentration leave little room for error.

Risk Disclaimer and Caution

Market risks are present; investments should be cautious. This article does not constitute personal investment advice and does not consider individual users’ specific investment goals, financial situations, or needs. Users should consider whether any opinions, views, or conclusions herein are suitable for their particular circumstances. Invest at your own risk.