The S&amp;P 500 index has fallen 5% from its peak, and the market is re-pricing hedging strategies. In a highly uncertain and low-confidence investment environment, Goldman Sachs' top trader Louis Miller has issued a warning that targeted macro hedging should become a core portfolio allocation rather than an option.
In his latest report, Miller pointed out that Goldman Sachs' trading desk has observed a significant increase in hedging activity in recent weeks—last week, short positions in U.S.-listed ETFs saw an 8.3% weekly increase, marking the second-largest weekly increase in nearly five years.
At the same time, the flow of funds in the derivatives desk has shown a regular pattern of &#34;realizing hedges during downturns and re-establishing positions during rebounds or volatility declines,&#34; indicating that institutional investors are systematically managing tail risks.
In addition to hedging strategies, Miller also provided specific operational recommendations regarding the timing of the return of AI themes, the selection path for physical asset (HALO) investments, and pressure signals in the private credit market. The current triple impact of geopolitical shocks, oil price fluctuations, and stagflation expectations is reshaping the risk-return landscape across assets.
<h2>Hedging Remains a Priority: How to Configure the Toolbox</h2>
In the U.S. market, the mainstream index hedging tools recommended by Miller include S&amp;P 500 put options (SPX puts) and VIX call spreads. In Europe, Goldman Sachs' asset allocation team suggests buying V2X call options while shorting European industrial stock put options.
On the directional hedging front, Miller is optimistic about shorting cyclical stocks or establishing long exposure through Goldman Sachs' geopolitical risk exposure stock basket (GSXUGEOP) and oil factor hedging portfolio (GSPUOILY). The logic behind this is that Goldman Sachs' research department has raised its oil price forecasts—model assumptions now suggest that low flow conditions in the Strait of Hormuz will last for 21 days (previously assumed to be 10 days), followed by a 30-day gradual recovery, thus adjusting the &#34;post-shock&#34; forecast price for Brent/WTI in Q4 2026 to $71/$67. In extreme scenarios, the average price of Brent crude oil in March could potentially surge to $140.
If high oil prices continue to suppress growth expectations and delay the Federal Reserve's rate cut cycle, Goldman Sachs' stagflation hedging portfolio (GSPUSTAG) will become a repositioning tool—this portfolio goes long on commodity equities and defensive compounding assets while shorting low-quality consumer, semiconductor hardware, and unprofitable tech companies. Goldman Sachs economists have pushed back the first rate cut expectation from June to September, but its probability-weighted path remains more dovish than market expectations.
<h2>Private Credit: Redemption Pressure Intensifies, Valuations Still Have Downside Potential</h2>
Risk signals in the private credit market are accumulating. According to data from Goldman Sachs' research department, the subscription scale of alternative asset management companies that disclosed data in March has fallen by over 50% compared to the average level in 2025, coupled with a high single-digit redemption rate, indicating that the industry is expected to experience net outflows in the coming quarters.
Miller pointed out that about 80% of assets in the direct lending space are held in long-term locked funds, SMAs, and publicly traded BDCs, which do not have an immediate redemption mechanism, thus the systemic risk of large-scale concentrated redemptions is relatively controllable. However, the negative sentiment towards the software industry exposure and the narrative of AI disruption are driving up redemption requests and will weigh on U.S. BDCs (GSFINBDC) and alternative asset management companies (GSFINALT)
Recent management fee income and growth prospects in the wealth sector.
In terms of valuation, although the private credit-related basket has seen some pullback year-to-date, Miller believes this does not mean the sector has become attractive—after deducting equity incentive-related post-tax expense multiples, most targets remain in the mid-to-high teens range. If a forced deleveraging scenario occurs, there is still room for further compression in valuations. Additionally, Miller has launched a European financial private credit exposure basket (GSXEFINC), which includes European alternative asset management companies, insurance companies, and wholesale banks with private credit exposure.
<h2>AI Theme: Infrastructure Layer Remains the Optimal Solution</h2>
Although the current market focus is on geopolitical issues, Miller believes the AI disruption narrative is likely to continue over the next 12 months, and the diffusion of industry-level impacts and company-level differentiation will make it difficult for the market to stabilize before fundamental data clearly contradicts the narrative.
In the AI theme basket covered by Goldman Sachs, transactions at the infrastructure layer continue to attract the most capital: the data center basket (GSTMTDAT) has risen 26% year-to-date, and the grid upgrade basket (GSXUGRID) has increased by 22%. Although the U.S. and global memory baskets (GSTMTMEM, GSXGMEMO) have fallen about 10% from their highs this year, Miller believes this provides a good buying opportunity on dips.
Goldman Sachs' research department expects that driven by strong demand for server-related applications and limited capacity expansion, the global memory market (DRAM, NAND, HBM) will continue to be in short supply from 2026 to 2027, and has raised the target prices for Samsung Electronics and SK Hynix, anticipating &#34;unprecedented operating profit margins during the traditional memory upcycle&#34; in the coming quarters.
<h2>HALO Investment: Physical Assets Need to Be Carefully Selected</h2>
After the accelerated unfolding of the AI disruption narrative and the warming of stagflation expectations, trading in physical assets is no longer cheap—there has been a premium on heavy and light asset price-to-earnings ratios in the industry. Miller suggests a differentiated layout under the HALO framework, focusing on three directions.
First, physical assets with an AI angle—robots. Miller believes the robotics theme will gain more attention. Recent industry catalysts are dense: NVDA and ABB robots announced a collaboration on AI-driven industrial robots, Alphabet's Intrinsic has been integrated into Google to expand its smart robotics business, and Qualcomm has reached a long-term strategic partnership with German startup NEURA Robotics to accelerate the commercialization of humanoid robots. Goldman Sachs' global robotics basket (GSXGROBO) covers global stocks in the robotics supply chain (excluding China), with another version that includes Chinese A-shares (GSXGBOTZ).
Second, physical assets with stagflation protection—Brazil. Goldman Sachs economists have raised Brazil's 2026 GDP forecast by 20 basis points to 2.0%, while also expecting the Central Bank of Brazil (Copom) to initiate a gradual rate-cutting cycle, with the policy rate expected to drop to 12.5% by the end of 2026. The Brazilian stock market shows the strongest negative correlation with local interest rates among emerging markets, and a decline in rates will support the stock market
Goldman Sachs' Brazil Interest Rate Sensitive Basket (GSBZRATE) provides relevant exposure.
Thirdly, physical assets supported by industrial policy - national defense and energy security. More broadly in Asia, the energy supply tensions triggered by the Middle East conflict are driving renewed attention to the nuclear power sector (GSXANUCP) - with South Korea, China, and Japan all making progress on nuclear power restarts or new constructions. In Europe, the energy shock has once again exposed the region's energy vulnerabilities, prompting the European Commission to update its clean energy strategy and advance the deployment of small modular reactors, with Goldman Sachs' European Power Basket (GSXEPOWR) seen as a core beneficiary

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Goldman Sachs' top trader Louis Miller issued a warning that hedging is no longer an option but a necessity. Short positions in U.S. ETFs surged by 8.3% in a week, marking the second-largest increase in nearly five years; redemption pressure in private credit has sharply risen, with subscription sizes halved compared to the monthly average; AI infrastructure is leading against the trend, and the pullback in memory has become a buying opportunity. Geopolitical shocks, oil price fluctuations, and stagflation are overlapping, accelerating a cross-asset risk repricing

- The S&P 500 index has dropped 5% from its peak, prompting a reevaluation of hedging strategies amid a highly uncertain investment environment, according to Goldman Sachs trader Louis Miller.  
- Notable increases in hedging activities have been observed, including an 8.3% rise in short positions for U.S. listed ETFs over the past week, indicating a systematic management of tail risks by institutional investors.  
- Miller also offered specific recommendations on hedging strategies, emphasizing the importance of asset selection amid geopolitical tensions, oil price fluctuations, and inflation expectations reshaping the risk-reward landscape across asset classes.

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Goldman Sachs top trader: Geopolitical risks increase uncertainty, it's still not too late to hedge!