"The Whole World Didn't Adjust Their Risk Overnight" - Here's What Goldman's Top Trader Is Seeing, Hearing, Thinking

The post-mortems are arriving en masses and here is Tony Pasquariello's - head of Goldman Sachs hedge fund coverage - initial check-down of what he's seeing / hearing / thinking:

What’s most clear from our franchise flows - again - is the technical setup. 

The trading crowd walks into today with light risk and a good reservoir of p/l. 

In turn, I expect that folks will play the cards that just turned over at face value.

Said another way: the whole world didn’t adjust their risk overnight. 

I’d be inclined to press on the prevailing trends that follow from these results. 

This argues for a broad set of reflation trades that play on pro-cyclical policies and high US nominal GDP growth.

Where that leads:

US equities:

Flow-of-funds should be unequivocally bullish (more on this in the last line below). 

Implied volatility will plummet. 

A broad set of financials should be as big a winner as any space. 

Small cap will enjoy a cyclical buzz today, but rates will pose a threat.

Non-dollar equities

Japan is the winner (reflation play, US defense partner, winner by process of eliminating most everything else). 

China has the most to lose.  

Europe remains in a tough spot (remember, a 10% tariff wipes out the entirety of EU earnings growth; link).  

Dollar bullish

(notably vs CNH, MXN and EUR).

Our overnight flows skew clearly in this direction, and the charts have clearly broken out. 

Higher rates

Steeper curves, wider inflation breakevens.  

Crypto

The market is showing its hand on BTC which has convincingly taken out the highs.   

Oil

The supply story gets worse and worse.  

Gold

Complicated short-term, very good medium-term.

A few other initial thoughts:

Assuming the House goes Republican, this is a clear mandate to act.  

While the general playbook is well known at this point, I’m reminded of an argument that sweeps tend to unlock possibilities that weren’t always obvious. 

My point here is to be open-minded on the convexity of Republican policy in the early innings of 2025. 

The key variables to sort out, which are not uncomplicated: tax, trade, regulation, immigration.

At a certain point, US equities will feel some impingement from higher rates.  

No one knows where that level is (Rich Privorotsky is as good at this as anyone, and he says keep an eye on 4.60% on US 10-year notes). 

To my eye, this most clearly argues for cyclicals-over-defensives and reflation plays.

China

I came into this with a view that market participants needed to be reminded that Chinese policymakers are serious about stabilizing the demand side of the growth equation.  

Now the market will need to be convinced of that commitment as the NPC standing committee meeting ends this week.   

Equity implied vols will be hammered. 

What you see is what you get overnight: a quick move in VIX back to 15. 

In turn, I suspect that dealers will have plenty of S&P delta to buy throughout the morning.  

To put a line under it

The market was de-risked coming into today. 

Play the cards in front of you, especially given that it’s November, where the seasonal forces - and corporate technicals - are usually very powerful.