This year, with artificial intelligence (AI) as the theme, large technology stocks such as Nvidia and Apple have driven the U.S. stock market to continue to rise. The S&P 500 index, one of the four major U.S. stock indexes, has set 31 consecutive historical highs.

However, Goldman Sachs Group reminded investors in a recent report that the risk of a correction in U.S. stocks is gradually increasing, and now may be a good time to step on the brakes. Investors should be appropriately cautious and adopt corresponding hedging strategies to hedge risks.

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Goldman Sachs analyst: Three factors bearish on US stocks

Analysts point to increasing risk factors including:

  • The U.S. deficit is widening and is expected to reach $1.9 trillion this year, $400 billion more than expected four months ago;

  • Retail and institutional investors are continuing to increase their equity exposure;

  • Compared with Q1 this year, the popularity of US stocks in Q2 was mainly driven by a few stocks. History shows that as the concentration of gains increases, the risk of a correction will also increase accordingly;

  • U.S. GDP growth is expected to slow from 4.1% in the second half of 2023 to an estimated 1.7% in the first half of 2024, while the unemployment rate rose from 3.5% to 3.8% on a three-month moving average basis. Goldman Sachs pointed out that the economy is expected to continue to grow weakly due to declining real income growth and softening consumer sentiment.

Given the current low cost of hedging, investors can use tools such as put options to provide hedging strategies for their investments while retaining high-quality holdings.

As the global election cycle unfolds, market volatility may gradually increase. Currently, the 10-day volatility of the S&P 500 index is only 5%, which is at an extremely low level.

Will Bitcoin be dragged down by the US stock market?

As Bitcoin’s correlation with the U.S. stock market reached its highest level in 18 months in June, Bitcoin’s 30-day correlation coefficient with the Nasdaq grew to 0.64 for the first time since 2022 in early June.

Therefore, if the U.S. stock market really experiences a sharp correction as experts say, it may trigger a continued sell-off of Bitcoin. Investors are advised to proceed with caution.