Goldman Sachs Says U.S. Stocks May Underprice Tail Risk, Recommends Cheap VIX Hedging

Goldman Sachs says U.S. equities near record highs may be underpricing tail risk, and its delta-one trading head Privorotsky is pointing investors to cheaper hedges while the VIX sits around 14. In a report cited by ABMedia, Privorotsky said markets have become less sensitive to potential downside catalysts. Goldman argues that loose financial conditions reduce constraints on policymakers, while elevated long-dated U.S. Treasury yields continue to pressure corporate funding and high-valuation assets. The bank also noted that Europe-linked volatility gauges are still in single digits. That, in Goldman’s view, leaves room to buy protection at relatively low cost before any sharp move in risk assets. Goldman’s message is not to dump equities. It recommends staying long nominal assets, avoiding bonds, and pairing that exposure with low-cost VIX call options or spread structures to cap downside. On stock selection, the firm favors financials, semiconductor capex beneficiaries, industrials, and cyclical names with pricing power. It suggests steering away from bond-like substitutes that lack pricing power or inflation protection, including staples, telecoms, and some REITs. Goldman’s point is simple: low volatility is not the same as low risk, and hedges are cheaper when they are bought before stress shows up.