Goldman Sachs: The Markets
2026-09-28 · Hosted by — · Goldman Sachs
Executive Summary
Chris Hussey spoke with Tony Pascarello, Goldman Sachs' global head of hedge fund coverage, about the shift from a year ago — when the Fed was cutting rates — to today, when the market is pricing roughly four hikes this year after one has already landed. Pascarello said the September hike was hawkish and initially served as a "clearing event" for stocks, but renewed pressure returned this week as 10-year yields pushed to fresh highs. Asked directly what poses the biggest risk to equities, Pascarello answered plainly: the bond market.
Key Stories & Changes
1. Fed Has Shifted From Cutting to a Multi-Hike Cycle
A year ago the Fed was cutting rates; now the market-implied path suggests roughly four hikes total this year, with one already delivered
Pascarello called the September hike hawkish, and said it initially acted as a "clearing event" for the stock market through Monday's close
By midweek, 10-year Treasury yields were making fresh highs again, reintroducing pressure on equities
2. Bond Market Named as the Top Risk to Stocks
Asked directly, Pascarello said the bond market is the "number one clear and present danger" for equities — a view he's held for 1-2 months, not a new call
Drivers: a resurfacing debt-and-deficit narrative, heavy sovereign bond issuance, and the AI CapEx buildout adding to overall bond supply
Q3 GDP growth is tracking 3%+, with Goldman's own economists forecasting 3.3% — stronger than the expected post-stimulus slowdown, adding to bond market pressure
3. AI CapEx Scale: From $150 Billion to $1.3 Trillion
Pascarello estimated hyperscaler CapEx was roughly $150 billion in 2023 and is projected to reach $1.3 trillion next year
Combined with a $2 trillion annual budget deficit at full employment, he called this a "very procyclical" double impulse working through the economy
He said this AI investment wave, alongside the deficit, is a genuine countervailing force to Fed-tightening worries, not a simple offsetting risk
4. Hedge Fund Positioning: Cautious, Not Aggressive
Overall risk deployment and leverage are relatively low compared to other points this year
Hedge funds — fundamental long-short, systematic, and macro — have performed well amid this year's volatility
Current positioning: paid rates, bias toward flatter yield curves, long dollar, and net long equities, but at a lower risk setting than most of the year
Pascarello's recommended hedge for equity risk: short positions in the bond market
5. Valuation Context: Less Extreme Than Late-1990s Bubble
S&P 500 trades at 18-19x earnings today versus 23x a year ago
Earnings growth is expected to decelerate from 25-30% to a still-healthy 10-12%
Unlike the 1999-2000 period, Pascarello said today's companies are more profitable with better balance sheets, making current valuations "less highly valued" on a like-for-like basis despite being in the 90th percentile historically
6. Top Trade Idea: Japanese Equities
Pascarello's preferred trade for the next phase: Japanese equities, citing a bottom-up shareholder reform story building "brick by brick"
Japan offers exposure to AI, advanced manufacturing, defense contractors, and benefits from a pro-cyclical government policy backdrop
He favors a domestic/TOPIX-like tilt over a Nikkei-style trade, noting the trade has become "cleaner" over the past four months as prior leverage has unwound
Trends Identified
1. Bond Market Displacing Fed Policy as the Primary Equity Risk
Pascarello's framing — that the bond market itself, not the Fed's specific rate decisions, is the biggest threat to stocks — echoes a theme across this week's coverage: deficits, AI-driven bond supply, and yield momentum are increasingly seen as independent risk factors beyond simple Fed-watching.
2. AI CapEx as Both Growth Engine and Inflation/Deficit Pressure
The scale of hyperscaler spending (from $150B to a projected $1.3T) is framed as simultaneously supporting economic growth and adding to the bond supply/deficit dynamics pushing yields higher — a double-edged dynamic playing out across multiple reports this week.
3. Low Hedge Fund Leverage Despite Strong Performance
Despite a strong year of returns across fundamental and systematic strategies, Pascarello notes funds are keeping risk deployment low — suggesting professional positioning remains defensively calibrated even as headline indices sit near highs. ---
Sentiment Analysis
Overall Market Sentiment: Watchful, Not Alarmed
Pascarello strikes a measured tone: the bond market is flagged as the top risk, but he stops short of calling for a bearish equity stance, instead recommending hedges rather than wholesale de-risking (reducing exposure to risky assets).
Risk Factors Highlighted
Bond market as the top equity risk: Pascarello explicitly named rising yields as the clearest danger to stocks, ahead of any other factor.
Widening federal deficit: A $2 trillion deficit at full employment is adding to bond supply pressures.
AI CapEx-driven bond issuance: The scale of hyperscaler spending is contributing to the same bond supply dynamics pressuring yields.
Decelerating earnings growth: A slowdown from 25-30% to 10-12% earnings growth could test how the market treats a "second derivative" slowdown.
Historically elevated valuations: Even adjusted for stronger fundamentals, the market sits in the 90th percentile of valuation history.
Path dependency on payrolls data: Pascarello flagged the upcoming jobs report as a near-term catalyst that both bond and stock markets will react to.
This episode was covered in today's [The Market Signal — 2026-09-28](https://marketsignal.beehiiv.com/p/the-market-signal-2026-09-28), a cross-source synthesis of multiple podcast reports.