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Goldman’s Pasquariello Says Be ‘Responsibly Bullish’ on Stocks

(Bloomberg) -- At a time when stocks are yet again roaring to all-time highs on the back of big tech companies, investors should be “responsibly bullish,” according to Tony Pasquariello, head of hedge fund coverage at Goldman Sachs Group Inc.

History is very favorable to cases where the Federal Reserve has cut interest rates into an accelerating economy with stocks around record highs, he said. The primary trend for equities remains higher, Pasquariello wrote in a note to clients.

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“So, own what you want to own,” he wrote, noting his own preference for the Nasdaq 100 over the Russell 2000 Index. He suggested using the options market to manage tail risks.

US stocks have gained for three successive weeks, defying the notion of seasonal weakness in September and mounting concerns about macro economic indicators. Bank of America Corp. strategists said last week the run in big tech stocks over the past two years has further to go and investors should position for more gains.

While bullish sentiment pushed several global equity benchmarks into overbought territory last week, some of the market’s riskiest corners showed continued strong gains, as the chart below shows.

Goldman’s Pasquariello said investors should neither fight nor chase the market. They face a situation where positioning looks elevated, while at the same time the tech rally shows no signs of relenting.

“Do I love the positioning setup and tactical risk / reward? I don’t.” he wrote. “With that said, do I think you should be stepping in front of the US mega cap tech freight train? I don’t.”