What If The Selling Isn't Over? Here Are Goldman's Top FICC Trades For Another Leg Lower In US Stocks
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After stocks suffered their fastest drop from a record high since the covid crash, followed by the fastest rebound since last October, sentiment remains extremely fragile but many believe that the worst is behind us. But what if despite the extreme oversold conditions, the spike in bearishness, the CTAs who flipped from long to max short, the insider buying, the favorable seasonals, we have yet to hit the bottom? Indeed, just a few minutes ago we published a post listing 10 reasons why investors may be wary of going long the market.
It is for that reason, that Goldman has published a must-read report (available to pro subs) listing its Top 9 cross-asset trades that hedge the risk of another leg lower in US equity weakness. After all, just yesterday we were discussing how despite the carnage in equities, credit not only remains resilient which presents several potential trades that offer more than a 10x return should the selling in credit catch down to stocks.
As an extension of that, Goldman FICC trader Vitali Meschoulam writes that the desk is now focusing on implementations for the most common question the bank's traders have received from investors of late: what are convex hedges in FICC, including fixed income, currencies and commodities, for the scenario where US equities continue (accelerate) their march lower?