Ceasefire negotiations between the US and Iran have been seesawing, causing the market to struggle for direction amidst sharp oil price fluctuations. Analysts from Nomura and Goldman Sachs have successively issued warnings: in the current environment, traders face extremely high risks, regardless of whether they are taking long or short positions.
Overnight, after a US-proposed ceasefire plan was rejected by Iran, oil prices plunged significantly during the day, only to nearly recoup all losses later. However, stock and bond markets did not decline in sync with the rebound in oil prices, showing a rare divergence. At the same time, Bitcoin and gold strengthened against the trend, while the US dollar closed largely flat.
Against this backdrop, Nomura strategist Charlie McElligott warned that the current accumulation of macro volatility has created "career risk," leaving a large number of traders effectively paralyzed.
Goldman Sachs analyst Shreeti Kapa stated plainly that in a binary risk environment, "cash is king." Given that equity risk premiums are near zero and valuations are at historically high levels, holding cash is a reasonable asymmetric position.
Oil prices experienced sharp swings, while stocks and bonds showed a rare divergence from crude oil. Following the news of the ceasefire proposal, WTI and Brent crude prices plummeted 6% to 7% from the previous day's highs, before nearly fully recovering those losses by the close. However, stock and bond markets did not come under pressure alongside the rebound in oil—the four major US stock indices all closed higher, despite weakening somewhat towards the end of the session.
According to Bloomberg, the negative correlation between the S&P 500 Index and WTI crude oil has persisted for 17 trading days (since March 3rd). This level of correlation has only been exceeded twice since early 2022, highlighting the abnormality of the current market structure.
Notably, almost the entire day's gains for the stock market were concentrated within just a few minutes after the ceasefire news was released, after which the indices largely moved sideways. Judging by the performance from the cash open, all four major indices actually recorded declines and failed to break through key technical resistance levels. The short-covering rally at the open also failed to generate sustained momentum.
Nomura: Accumulation of Macro Volatility Leaves Traders Generally Paralyzed. Nomura strategist Charlie McElligott pointed out in his latest commentary that, although there is temptation to trade reversals, hedge volatility squeezes, or sell beta, traders are currently in a widespread state of "paralysis" due to the overlay of multiple simultaneous risks.
McElligott listed five core pressures: First, the current accumulation of macro volatility constitutes "career risk," making it extremely difficult to get approval for shorting put options or shorting tail risks against the backdrop of recent events. Second, there is "widespread skepticism" in the market regarding a "quick resolution" to the conflict, as the structural damage to the global economy from commodity supply shocks, and the prospect of central banks potentially raising interest rates amidst fragile growth, are both difficult to eliminate in the short term.
Furthermore, he highlighted three other concurrently developing risks: clear signs of deterioration in US employment trends; the ongoing disruption from artificial intelligence further impacting the labor market; and redemption and liquidity crises in the private credit market.
Goldman Sachs: High Valuations, Risk Premiums Near Zero Make Cash a Reasonable Asymmetric Position. Goldman Sachs analyst Shreeti Kapa assessed the current market from a broader perspective. She noted that since the outbreak of the Middle East war, the MSCI World Index has fallen approximately 7%. Although this remains a minor pullback from a long-term historical view, the current valuation environment is far more fragile than during past crises.
Kapa emphasized that compared to the 2022 energy shock, current equity valuations are not only higher than the lows seen then, but also higher than levels preceding the previous energy shock—a conclusion that holds across multiple valuation metrics. She also pointed out that the market has largely digested the interest rate shock, but pricing for growth risks remains limited. This stands in stark contrast to 2022, when real yields surged from negative territory, delivering a much larger rate shock.
Based on this assessment, Kapa concluded that in a binary risk environment, the value of optionality and liquidity outweighs directional bets. "The investors who perform well in these environments are not those who correctly call the bottom, but those who have cash to deploy when the uncertainty clears."
She stated that, given current equity risk premiums near zero and valuations across regions and sectors at historically high levels, holding cash is effectively a reasonable asymmetric position—investors sacrifice almost no expected return while gaining considerable flexibility.