Premium"The Distribution Of Possible Outcomes Is Wide" - Goldman Top Trader Looks To First 100 Days Of Trump 2.0
Given widespread fiscal imbalances and stubborn US inflation, the dominant narrative over the past month had been a significant selloff in global bond markets.
However, as Goldman Sachs head of hedge fund coverage points out in a brief note this morning, this week marked a reprieve from that dynamic, as a peaceful CPI print (and a lighter dose of UST supply) arrested some of the pressure, allowing stock operators to catch their breath.
As we now charge into the first 100 days of Trump 2.0, Tony Pasquariello believes one can reasonably assume the trading environment will be high velocity, and the distribution of potential outcomes is wide.
What follows are seven short points that stuck out to the hedge fund honcho this week.
1. Flow-of-Funds / Positioning.
The pattern of fact over the past month: at a time when stock buybacks were constrained, the trading community shed a lot of length.
This is clear when looking at our PB data (meaningful selling in three of the past four weeks) and CFTC futures data (where a lot of S&P supply cleared the market).
This defensiveness is also reflected in measures of sentiment, which look remarkably downbeat considering the broader trend (witness AAII bull/bear at the lowest level since late 2023, or CNN fear/greed in the “fear” category).
Looking forward, my view is this selling pressure abates, and the technicals are set to improve as January becomes February.
2. Trump 2.0 Policy.
The past month brought a heavy dose of headline roulette. specifically, most of my client inquiry came around the specter of increased tariffs.
I’m not dismissive of the difficulty of managing the news flow in the next stage of the game (aka next week). At the same time, however, I’d argue the market has taken a “half empty” approach here -- and is not giving much credit to where there’s genuine scope for optimism (e.g. de-regulation).
Framed another way: while headline volatility will certainly not go away anytime soon, as the first 100 days unfolds I want to keep my eye on the main thing: the incoming administration will ultimately skew towards pro-growth, pro-cyclical policies.
3. US Tech.
After screaming to fresh highs in mid-December, tech has struggled of late.
At the same time, there’s been a step-change in what we’re hearing from the brightest minds in this space on the arrival of structural advancement -- particularly around AGI and superintelligence.
As we approach a glut of mega cap earnings at the end of the month, have a look at ticker GSXUROBO (a basket of global companies with leverage to robotics / automation / humanoids).
A related point: if the robots are coming, it looks like we may need them.
4. China.
Chinese equities have started the year on the back foot.
More broadly, recent months have been marked by pronounced growth concerns (witness a collapse in rates and sustained weakness in the currency).
While CSRC talk about equity market stabilization was welcomed this week, barring a more significant fiscal change that directly supports consumption, I’m still biased to think that international capital will NOT meaningfully flow to China in the near-term (witness gross and net exposures sit near 5-year lows).
5. Europe.
For as bad as the market narrative has been -- and, for as bleak as the political and economic backdrop feels -- the fact is European equities have traded just fine in early 2025.
Why? A soft currency is a tailwind for the export-oriented parts of the market (you can see this clearly in the DAX, which is trading on ATH).
More simply, coming into this year, positioning was downbeat and sentiment was worse.
Did I catch any of this rally? I did not. Do I think it will last? I do not.
6. Political Volatility.
When one looks back at last year, this is a remarkable data point: for the first time on record, every single governing party facing election in a developed country lost vote share.
To link back to the prior point, I suspect the theme of political vol will persist across Euroland in 2025.
7. Power.
One of the most powerful themes of the past year -- but, really, of the past decade -- has been a remarkable escalation in demand for power. this quote from a client is right on point:
“everything we are building for the future -- AI compute, self-driving cars, military 2.0, humanoid-robots -- consume voracious amounts of electricity. we are entering an arms race for who can source the most power in the shortest amount of time (with a bonus for low carbon power).
The success of the biggest companies and nations in the world, and human progress in general, will be measured by the growth in how much electricity per capita is consumed.”
It’s here that I’ll note the annual returns in our custom basket for the theme, ticker GSENEPOW; the magnitude and consistency of the right column is almost hard to believe (YTD +13%):
The moral of this story: amidst a major transition period for the market, “our business is change."
