Goldman Sachs believes that the risk-reward attractiveness of US stocks has declined, and technical support cannot hide fundamental concerns.
This week, Rich Privorotsky, head of Goldman Sachs' Delta-One trading desk, issued a warning: While current stock market technical demand continues to provide support, valuation levels are unsettling, the risk-reward ratio &#34;feels poor,&#34; and investors should use interest rates as the core coordinate for judging market direction.
In his latest report, Rich Privorotsky stated directly that market pricing seems to imply optimistic expectations for negotiation outcomes. The market anticipates a negotiated agreement over the weekend, but may wake up to disappointment on Monday.
US-Iran negotiations are set to officially begin on the 10th, but disagreements surrounding the Lebanon issue have already become a short-term obstacle to the normalization of shipping in the Strait of Hormuz.
Wall Street News mentioned that US Vice President Vance stated that the ceasefire conditions between the US and Iran do not include Lebanon, and the US has never made such a commitment. Israel also emphasized that military operations against Hezbollah in Lebanon do not apply to the current ceasefire agreement.
In Privorotsky's view, the issue of passage through the Strait of Hormuz is difficult to resolve in the short term. As long as negotiations are ongoing, Iran has no incentive to allow oil flow normalization, as control of the strait is its only bargaining chip.
Rich Privorotsky believes that the US stock market has not fully priced in these risks, but the oil market has shown a reaction, with Brent crude oil futures prices rising above yesterday's closing price on December 26th.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/516fc8ca-f9ab-4aff-af8c-ba9ac3ceb2ea.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/516fc8ca-f9ab-4aff-af8c-ba9ac3ceb2ea.png"/>
Furthermore, inflation has been quietly building before the energy shock, and the CPI data to be released on Friday constitutes a key risk point in the near term. Privorotsky stated directly:
<blockquote>
Ignore stocks; interest rates are the North Star.
</blockquote>
<h2>Fragile Ceasefire, Hormuz Becomes Biggest Variable</h2>
Privorotsky pointed out that the lack of consensus on the Lebanon issue has become a short-term obstacle to passage through the Strait of Hormuz.
Judging by the stock market's reaction, the market does not currently view this as a major threat, but the key question is how far apart the parties' positions truly are and whether there is a genuine common ground.
He emphasized that the US has a strong desire and necessity to withdraw, but Iran's core bargaining chip is precisely its control over the Strait of Hormuz. Privorotsky stated:
<blockquote>
As long as negotiations are ongoing, one cannot expect them to allow oil flow normalization; doing so would be equivalent to disarming themselves.
</blockquote>
He added:
<blockquote>
If Iran's toll booth becomes part of a long-term solution to this conflict, it would represent a permanent structural shift in the oil distribution landscape.
</blockquote>
<h2>Interest Rates Are the Core Variable</h2>
In interpreting market signals, Privorotsky's attitude is clear: stocks should be ignored for now, and interest rates are the true direction indicator.
He pointed out that this is never an extreme tail-end scenario like &#34;oil prices soaring to $200, forcing central banks to hike rates aggressively,&#34; as the probability of such an event has always been low.
What the market is truly pricing in is oil prices stabilizing at higher-than-expected levels, refined oil products (diesel, gasoline, jet fuel) remaining high, economic growth not experiencing a collapse, and inflation remaining sticky.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/1948dcb4-4b8e-4963-be9f-626f15ba79dd.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/1948dcb4-4b8e-4963-be9f-626f15ba79dd.png"/>
He stated that the Federal Reserve is at least constrained from cutting rates, while in parts of Europe, rate hikes are back on the table.
The highly anticipated US CPI data is due on Friday. He cautioned that even before this geopolitical shock, commodity-driven inflationary pressures were already building, commodities have been continuously tightening, gold has been sought after, and the logistics managers' index indicates that visible inventories are at historic lows.
<h2>Technical Support and Valuation Dilemma</h2>
On the flow of funds, Privorotsky admitted that technical forces are still providing support for stocks.
Currently, Commodity Trading Advisors (CTAs) may still be buyers, and short covering volumes could be record-breaking. If volatility continues to compress, the market might maintain a relatively range-bound pattern. However, he maintains significant reservations about current valuation levels. He pointed out:
<blockquote>
I don't like this position. The market seems to have returned to the starting point before the shock. This feels absurd; just look at the Russell Index.
</blockquote>
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/985c3132-a5a3-43fc-83a7-0c07a73c91b5.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/985c3132-a5a3-43fc-83a7-0c07a73c91b5.png"/>
The pricing of small-cap stocks, especially those in the Russell Index, shows a clear deviation, as these assets are highly sensitive to both interest rates and growth.
He characterizes the current structure as: on one hand, strong support from technical fund demand; on the other hand, price levels he disagrees with and the macroeconomic outlook for the second half of the year. He believes:
<blockquote>
If the volatility compression extends far enough, I would consider expressing a bearish view through options structures.
</blockquote>
<h2>Consumption and AI: Two Divergent Narrative Lines</h2>
On the consumption side, Privorotsky paints a rather negative picture.
The US ISM Prices Paid Index rose to its highest level since June 2022, indicating upside risk for CPI; meanwhile, companies' ability to pass on costs is limited, and private hiring rates have fallen to their lowest since February 2010.
US fiscal spending is likely to narrow significantly in the second half of the year (excluding defense spending), and the displacement effect of AI on white-collar employment is also causing increasing concern.
He believes that the consumption side is the least resilient to this rebound but bears the most concentrated downside risk in the second half of the year.
The AI direction, on the other hand, offers a completely different narrative.
Privorotsky expects the market to shift back to AI and &#34;investment economy&#34; themes around the first-quarter earnings season.
He noted that, according to Reuters, Anthropic's latest model, Mythos, disclosed in a blog post that it found &#34;thousands&#34; of critical vulnerabilities in widely used core software, including operating systems and web browsers (such as Linux).
Anthropic has paused its release and provided relevant agencies with a window for fixes, but he remains uneasy about this:
<blockquote>
What will happen when open-source systems with similar capabilities emerge without these guardrails?
</blockquote>
In terms of trading direction, he predicts that token consumption is currently surging in the short term, and the AI hardware supply chain remains worth holding, but the inherent power and potential risks of the technology itself make him remain cautious.
Risk Disclosure and Disclaimer
Markets are risky; investment requires caution. This article does not constitute personal investment advice, nor does it consider the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinion, view, or conclusion in this article is consistent with their specific situation. Investment based on this is at your own risk.

The US-Iran talks are about to be held in Islamabad, the capital of Pakistan. Pakistan has activated a red alert, deploying over 10,000 military and police personnel to tightly control key areas and ensure the security of the talks. Do you think this crucial meeting can ease tensions in the Middle East?

The US-Iran talks are about to be held in Islamabad, the capital of Pakistan. Pakistan has activated a red alert, deploying over 10,000 military and police personnel to tightly control key areas and ensure the security of the talks. Do you think this crucial meeting can ease tensions in the Middle East?

With US-Iran negotiations imminent, where is the situation in the Middle East headed?

GS-A

GS-C

Goldman Sachs Delta-One trading desk head Rich Privorotsky warned that the risk-reward ratio for US stocks has declined, and investors should focus on interest rates as a key indicator of market direction. He pointed out that market optimism about negotiation outcomes could lead to disappointment, especially in the US-Iran negotiations, with the Lebanon issue becoming an obstacle to shipping in the Strait of Hormuz. Privorotsky believes the market has not fully priced in these risks, although the oil market has begun to react, and CPI data will be a key risk point in the near term

- Goldman Sachs warns that the risk-return appeal of the U.S. stock market is declining, with technical support unable to mask fundamental concerns.  
- The ongoing negotiations around Middle Eastern tensions, particularly regarding Lebanon and the Strait of Hormuz, add uncertainty, with Rich Privorotsky emphasizing that the market hasn't fully priced in these risks.  
- He suggests that interest rates should be the main focus for investors, as inflation pressures grow and upcoming CPI data could be a key risk factor.

“Ignore Stocks, Rates Are Key”: Goldman Sachs Delta-One Trading Desk Warns “Current Risk/Reward Feels Poor”