Day 14 of Iran Conflict, Goldman Sachs Trading Chief: Market Outlook Remains Bleak, "I Remain Cautious"

Iran conflict enters its 14th day, oil prices return above $100, with both interest rates and the stock market under pressure. Goldman Sachs One-Delta trading desk head Rich Privorotsky issues a warning: “Currently, the market shows no clear signs of turning around, and fundamentals continue to worsen.”

Since the outbreak of the conflict, the Strait of Hormuz has remained partially blocked, causing oil prices to break through $100 per barrel. U.S. Treasury yields continue to rise, the U.S. stock market is slowly losing ground, and the overnight rebound after yesterday’s turbulence in emerging markets is gradually fading. In his latest market assessment, Privorotsky wrote, “The longer the conflict drags on, the worse the ultimate outcome will be.”

Market sentiment indicators have fully turned pessimistic. The American Association of Individual Investors (AAII) sentiment spread has fallen to -14, and CNN’s Fear & Greed Index stands at 21. Despite retail inflows remaining positive and stock buybacks continuing, technicals provide some support. However, Privorotsky clearly states, “Sentiment and positioning support a rebound, but fundamentals make me worried.”

Interest Rates and Credit: Late-Cycle Tightening Signals Emerge

Privorotsky points out that the current yield curve exhibits typical late-cycle tightening features — yields are rising while the curve continues to flatten. Energy prices are the main driver of this repricing, and historically, this combination has often been destructive for risk assets, especially impacting Russell index components and financial sectors.

Cracks are widening in the credit markets. Privorotsky notes about six apparent independent credit events occurring sequentially, with private equity fund redemption halts (gating) being particularly concerning. He describes this as a “serious red flag.” Using investment-grade credit spreads relative to the S&P 500 and Euro Stoxx 50 as key indicators, he believes credit market stress is “slow-moving but won’t disappear.”

Meanwhile, his macro model shows that in a late-cycle tightening environment, the dollar tends to be the biggest winner — but this judgment heavily depends on oil price movements.

Europe: Short-Term Outperformance Masks Structural Risks

Over the past few trading days, European stocks have slightly outperformed U.S. equities. Privorotsky attributes this to a short squeeze after overly crowded short positions and some global fund rotation flows. Yesterday’s market showed clear de-leveraging — momentum factors underperformed, while mainstream short targets were forced to cover and rally.

However, Privorotsky believes that European market pricing is significantly distorted, especially regarding the structural impact of natural gas prices — December TTF natural gas futures have approached historical highs. He warns that the structural rise in oil prices is quietly affecting corporate earnings expectations, and this pressure will continue to accumulate.

AI Valuation Reconfiguration: Growth Stocks Face Deep Scrutiny

Another major risk Privorotsky highlights comes from the artificial intelligence sector. He admits that AI technological innovation has not stalled, and advances in autoregressive self-learning are impressive. However, this has triggered deep doubts about the terminal valuations of growth stocks and SaaS assets.

“Nobody truly knows the long-term value of these assets,” he writes. “So even if earnings per share continue to grow, every rebound will be sold off because investors worry they might be holding stranded assets.” He cites the compression of Nvidia’s valuation multiples and the trend in SK Hynix’s P/E ratio as evidence, and points out Oracle and Adobe as key stocks to watch closely in the near term.

Geopolitical Game: Iran “Shorts” the S&P 500 at Low Cost

On the geopolitical front, Privorotsky presents a core judgment that he finds difficult to falsify: Iran, with a small number of low-cost drones and speedboats, can maintain a partial blockade of the Strait of Hormuz for a considerable time, suppressing the daily supply of 2-5 million barrels of oil at minimal cost.

He believes that the current financial market shocks are not enough to force the U.S. to abandon strategic goals, and Iran has not yet caused enough damage to gain maximum leverage in negotiations. Under this context, Iran has strong motivation to extend the battlefield into the financial realm, not just military.

Privorotsky concludes with a self-deprecating remark: “The U.S. is fighting a kinetic war in Iran, while Iran is waging a war against the S&P 500.”

Most institutional investors hold hedged positions, and the mainstream view is that if market pressures become too great, an “executive put” will quickly end the conflict. But Privorotsky remains cautious: “I remain cautious.”

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