'10 Sigma': Goldman's Hedge Fund Honcho 'Level Sets' After Extraordinary Week

With market participants lunging from one headline to the next, it is perhaps worth noting that so far in 2026, there are just 44 trading days down, and 205 to go... and geopolitical risk is going vertical once again...

Following the military operations in the Middle East last weekend the S&P has sold off just 2%, but as we noted yesterday, that relative calm belies and undercurrent of chaos and panic.

To level set the magnitude of movement, Goldman's head of hedge fund coverage Tony Pasquariello, offers the following rather stunning table.

This is a cross-asset sample of large moves since the conflict began (relative to the prior three months). 

Focus on the standard deviation...

The gaps in energy are striking, and price action in front end rates, the dollar and non-US equities was notably harsh.

The historical impact of geopolitical risk shocks on Equity prices has typically been short lived...

In terms of macro impact of higher oil prices it tends to have a limited impact on GDP and Inflation...

Pulling those two points together: oil volatility... 

This is the VIX equivalent for WTI. 

While Pasquariello admits it's perhaps not a perfect mousetrap, but it illustrates the temperature of things. 

Suffice it to say, the volatility of oil will need to settle down for the rest of the macro complex to settle down.

As Goldman's Jacob Malmstrom notes, the US has heavily underperformed the rest of the World, so far in 2026...

As, despite an ugly week in Asia  (KOSPI -11%, NKY -6%, TWSE -5%), Goldman's Prime Book clients did NOT run for the exits in the most popular trades...

Pasquariello concludes with four quick things that stood out to him:

i. the software ETF rallied every single day this week.

ii. US IG credit spreads managed to tighten this week (a few technicals were helpful here: a pause in expected supply, a spec short base and a dose of “yield buyers”).

iii. precious metals failed to deliver any protection this week -- gold -2%, silver -10% -- which probably speaks to positioning and margin as much as anything.

iv. some hawks are suddenly poking their heads up in Europe; it’s here I’ll remind myself that the ECB hiked in both 2008 and 2011

His ending thoughts on all that make perfect sense in this 'upside-down' world: "I supposed it's that kinda trading environment" again.

Ultimately, as Goldman's Lee Coppersmith concluded, what ties all of this together is the gap between macro resilience and market fragility. Historically geopolitical shocks tend to fade and equities refocus on growth and earnings fairly quickly. But the current setup is complicated by positioning and concentration. Investors are still running high leverage, leadership remains extremely crowded, and the earnings engine of the index is increasingly dependent on a very small group of AI-linked companies. That combination helps explain why the index drawdown has been relatively contained while the internals have felt far more unstable.

Put differently – this shock may ultimately fade like others before it. But until positioning de-crowds or leadership re-accelerates, the combination of crowded factor exposure, elevated leverage, and extreme earnings concentration likely keeps the tape choppier than the index alone would suggest.

Professional subscribers can read much more from Goldman's Sales & Trading team here at our new Marketdesk.ai portal