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Tony Pasquariello, global head of Hedge Fund Coverage for Goldman Sachs, said that a risk reduction in info tech (NYSEARCA:XLK) equity position could be called for.
The info technology stocks, and the core growth/inflation trade-off are moving the market up, but “there’s a case to be made for some surgical risk reduction [of tech] given a handful of tactical considerations,” he said in a markets/macro note.
Among those considerations, he included deteriorating seasonals, stretched positioning and an extended relative strength index.
Also, the Russell 2000 (IWM) outperformed the Nasdaq (COMP:IND) by almost 6%, “clearly suggestive of position reduction,” he said.
The S&P 500 (SP500) is up to another all-time high at 5,654, generating a Sharpe ratio of more than 3 since the lows of April.
“If that protection is what has allowed you to stay comfortably long … it is worth the cost that you paid for it,” said Dominic Wilson, economist and senior advisor in the Global Markets Research Group.
“So, I’ll stick with the premise of staying in the pocket with your best assets and protecting them with cheap options,” concluded Pasquariello.
Credit to Goldman Sachs.