Goldman Sachs trader: U.S. stocks will face continued selling pressure this week

# By Yang Chen

Goldman Sachs has warned that selling pressure on U.S. stocks is far from over, with CTA strategies likely to continue unwinding positions. Combined with depleted liquidity and the negative gamma effect, market volatility is set to amplify. Meanwhile, elevated positioning across other systematic funds (risk parity and volatility control strategies) and a slowdown in retail inflows have collectively heightened downside risks for the market.

Despite a strong rebound in U.S. stocks last Friday, selling pressure has not abated. Goldman Sachs' trading desk noted that trend-following funds may continue offloading shares this week, and coupled with fading liquidity and a negative gamma backdrop in the options market, U.S. stocks are poised for continued volatility and amplified swings.

According to Bloomberg, Goldman Sachs' trading desk indicated that the S&P 500 has triggered the short-term threshold for position unwinds under trend-following CTA strategies. These systematic strategies, which trade based on price momentum rather than fundamentals, are expected to remain net sellers in the coming week **regardless of market direction**.

Goldman Sachs' calculations show that a renewed market decline could trigger roughly $33 billion in selling this week, while even a rally may still prompt around $8.7 billion in outflows. For the market, this means that even a rebound in the index could face a "failed breakout" more easily due to capital outflows.

The bank’s trading desk also emphasized that a marked thinning of order book liquidity and a shift in options dealers’ positions from positive to negative gamma are likely to exacerbate intraday volatility. Additionally, elevated positioning in other systematic strategies (such as risk parity and volatility control) and a slowdown in retail inflows have further raised market downside risks.

## CTA Selling: "Momentum-driven Unwinds" to Dominate This Week

Goldman Sachs stated that the S&P 500 has crossed the short-term trigger for CTAs, prompting them to sell equities. The bank expects CTAs to remain net sellers in the coming week, and provided volume estimates for different market scenarios:

1. **Sideways market**: CTAs are projected to sell approximately $15.4 billion of U.S. equities this week.

2. **Rising market**: Still a potential $8.7 billion in selling.

3. **Renewed decline**: Up to $33 billion in selling could be triggered.

Of greater concern is the **threshold effect**. Goldman Sachs data shows that a break below 6,707 on the S&P 500 could unlock an additional maximum of around $80 billion in systematic selling over the next month, acting as a potential amplifier for further market downside.

## Thinning Liquidity and Return of Negative Gamma to Amplify Two-Way Volatility

Beyond capital flow pressures, Goldman Sachs' trading team believes microstructural factors will make price action more choppy. The top-of-book liquidity for the S&P 500 (the volume available at the best bid and ask prices) has plummeted sharply from a year-to-date average of about $13.7 million to roughly $4.1 million.

In a note sent to clients on Friday, Goldman Sachs' trading desk team (including Gail Hafif and Lee Coppersmith) wrote that the inability to offload risk quickly will exacerbate intraday volatility and delay a stabilization in overall price action.

The position structure in the options market has also shifted. According to Goldman Sachs, dealers were previously in a positive gamma regime that helped cap the index from breaking above 7,000; this has now shifted to a negative gamma backdrop, the bank estimates.

Amid thin liquidity, this structure makes it more likely for dealers to buy on rallies and sell on dips to hedge their positions—**amplifying both upward and downward price swings**.

## Other Systematic Funds Still Have Room to Deleverage, Conditional on Sustained Volatility

In addition to CTAs, Goldman Sachs pointed out that other systematic strategies also have significant room for de-risking: looking back over the past year, current positioning for risk parity strategies is at the 81st percentile (higher than 81% of readings in the past year), while volatility control strategies stand at the 71st percentile.

Unlike CTAs, these two strategies are more dependent on sustained changes in realized volatility. As such, persistent elevated volatility would amplify selling pressure from these funds. Goldman Sachs noted that realized volatility for the S&P 500 is rising, though the 20-day gauge remains below levels seen in November and December last year.

## Seasonal Factors and Fading Retail Buying Undermine Rebound Catalysts

Goldman Sachs believes seasonal support for the market is limited. Historically, February has been a weak and more volatile month for the S&P 500 and Nasdaq 100, as supportive January capital flows—including pension contributions and a peak in retail trading activity—gradually fade.

Retail inflows have also shown signs of cooling. After a year of "buying the dip" consistently, the latest two-day net retail imbalance data shows approximately $690 million in net selling last week, indicating a waning willingness to "buy all pullbacks". Popular retail trades tied to cryptocurrencies and related equities have been hit even harder.

Goldman Sachs argues that this raises the risk of broader rotational outflows from U.S. equities, a shift from the more one-sided trading patterns seen last year.

## Aftermath of Last Week’s Extreme Volatility: A Rebound Does Not Equal Risk Elimination

The S&P 500 rose 2% last Friday, posting its biggest single-day gain since May and nearly erasing its mid-week plunge—though the prior drop was equally sharp.

According to Bloomberg, the market volatility was linked to Anthropic PBC’s launch of new AI automation tools, an event that led investors to reassess "disruption risks" and wiped out billions of dollars in market value for software, financial services and asset management stocks.

Goldman Sachs said the most frequent questions from its clients on Friday centered on systematic strategy positioning and capital flows. This reflects that in an environment of thinning liquidity and derivative hedging mechanisms that may amplify volatility, short-term prices are more easily driven by **trading flows rather than fundamentals**.

Source: Wall Street News

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