US stock sell-off may intensify warns Goldman Sachs
The two-month selloff in US stocks threatens to intensify as options dealers on Wall Street and fast-money traders both turn against the market.
Such is the warning from Goldman Sachs Group Inc.’s Scott Rubner, who has studied the flow of funds for two decades. With indexes such as the S&P 500 breaking below key thresholds, trend-chasing systematic funds are at risk of being forced to unwind equity holdings.
By his estimate, commodity trading advisers that surf the momentum of asset prices through long and short bets in the futures market will unload $48 billion of global stocks over the next week even if the benchmarks stand still.
Right now, market makers — with the capacity to move millions of shares to hedge their books — are mired in a stance where they have to go with the prevailing equity trend. That is, selling stocks when they go down and vice versa, exacerbating price swings in both directions.
The positioning, known as short gamma, has reached the most extreme level since Goldman began tracking the data in 2019.
“This is a no rules market and flows over fundamentals are the drivers of price action into the end of the quarter,” wrote Rubner, a managing director at the bank, in a note. “This dynamic remains negative in the ultra-short term.”
Stocks erased earlier losses Wednesday as the S&P 500 recovered from a 0.8% decline to end the session flat. The benchmark index has dropped almost 7% from its 2023 peak in July as the Federal Reserve’s resolve to keep interest rates higher for longer put pressure on stretched valuations. Along the way, the index lost support at 50-day and 100-day averages.
While trading has been orderly during the latest retreat, notable down days are adding up in stark contrast with
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