The aftermath of the collapse of technology stocks swept through the Asia-Pacific, with Korean stocks plunging and leading the decline. Bitcoin once fell below the 60,000 mark, and silver fell another 10%.

# Source: Wall Street Insights

# By Zhao Ying

Goldman Sachs' trading desk has noted that the floating shares of the IGV Software ETF, a market bellwether, have dropped to a nearly five-year low, indicating that selling pressure has largely been exhausted. More importantly, clients have started unwinding index hedging positions—a typical precursor to a market bottom. Institutional investors began buying the IGV on Wednesday and Thursday, with the fund’s floating shares surging 12% in a single day on Wednesday, the largest increase since 2023.

Following a trillion-dollar sell-off in US software stocks, Goldman Sachs’ trading division has observed signs of a market bottom. The bank’s trading desk noted that after eight consecutive days of sharp declines, positions in software ETFs have been heavily liquidated, and institutional investors have started attempting to bottom-fish—potentially signaling that this historic correction is drawing to a close.

Software stocks have plummeted 15% in the past week and are now down 29% from their September 2025 peak. The IGV Software ETF, a market bellwether, has set consecutive volume records over two days in its 25-year history, with more than 85 million shares traded since Tuesday this week. Activity at Goldman Sachs’ trading desk hit 8 out of 10, with institutional clients net selling $2 billion worth of positions.

While selling continues, Goldman Sachs’ trading division has captured key turning signals: the IGV’s floating shares have fallen to a nearly five-year low, showing selling pressure is largely exhausted. More crucially, the bank’s derivatives trading desk observed that clients are unwinding index hedging positions, a classic sign of an impending market bottom. Institutional investors stepped in to buy the IGV on Wednesday and Thursday, with the fund’s floating shares jumping 12% on Wednesday—the biggest single-day gain since 2023.

This optimistic assessment from the trading desk stands in stark contrast to the pessimistic outlook from Goldman Sachs’ strategy division, highlighting the current market divergence over the software sector’s prospects.

## Trading Desk Observations: Signs of Drying Up Selling Pressure

Goldman Sachs’ ETF trading desk is closely monitoring abnormal trading activity in the IGV Software ETF. The fund has become the primary tool for clients to gain exposure to software stocks this week, with ETF trading accounting for 37% of total trading volume. By 11 a.m. ET, more than 11 million shares had been traded on the day.

More critically, position changes show the IGV’s floating shares hit a nearly five-year low earlier this week, indicating that previous long positions have been significantly liquidated. Data from Goldman Sachs’ research division shows that large mutual funds already cut their software stock allocations to an underweight level as early as mid-2025.

Goldman Sachs’ derivatives trading desk has also captured a subtle shift in market sentiment. The bank’s US panic index rose to 8.3 (the 89th percentile over a three-year lookback period), yet the trading desk observed clients selling put options to take profits, betting that the current sell-off may be coming to an end. After the S&P 500 broke below its 100-day moving average, clients are repositioning, and "market expectations for a sharp rebound in stock indices to all-time highs have cooled".

## Institutional Capital Starts Testing the Bottom

After days of institutional selling, Goldman Sachs’ trading desk finally saw institutional buyers step into the IGV on Wednesday and Thursday. The fund’s floating shares surged 12% on Wednesday, the largest single-day increase since 2023. Goldman Sachs said this "feels like real-money buyers trying to find a bottom, along with potential short covering".

Data from Morgan Stanley shows that by 1 p.m. ET, retail investors had net bought $1.7 billion worth of positions, at the 50th percentile for this time of day and about $115 million above the average level. Of this, $1.3 billion was in ETFs and $435 million in individual stocks, with bottom-fishing capital starting to flow back.

That said, systemic selling pressure has not been fully relieved. Morgan Stanley estimates that a 1.5% closing drop in the S&P 500 would trigger $30 billion in stock selling, while a 2% decline would lead to $45 billion in sell-offs. Amid thin market liquidity, Goldman Sachs’ derivatives trading desk pointed out that "intraday volatility has been extreme this week", meaning even small buying interest could trigger a sharp rebound.

## Strategy Division’s Pessimistic Stance

In contrast to the technical bottoming signals observed by the trading desk, Goldman Sachs’ strategy division is cautious about the software sector’s long-term prospects. Analyst Ben Snider and his team, in a latest report, compared the current software industry to the newspaper industry disrupted by the internet in the early 2000s and the tobacco industry hit hard by regulation in the late 1990s.

Goldman Sachs believes the current valuation decline reflects not short-term earnings volatility, but a fundamental market doubt about whether the software sector can sustain its long-term growth and profit margins. This comparison of software stocks to the "newspaper industry" underscores that Wall Street’s fears over AI’s impact on traditional software business models have reached an extreme stage.

This divergence reflects the core contradiction facing the market: oversold signals at the trading level versus structural concerns at the fundamental level. For investors, short-term technical rebound opportunities and long-term industry uncertainty need to be evaluated separately.

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