Rich Privorotsky, head of Goldman Sachs' Delta-One desk and a top trader, noted a clear "risk-off" sentiment during Thursday's US trading session, with selling pressure hitting AI, tech, and unprofitable tech firms.

The Challenger job cuts report revealed October's layoffs hit the highest level since 2003, primarily in warehousing and tech sectors, likely reflecting AI-driven labor displacement. Though noisy, the data aligns with the broader narrative of automation reshaping employment. Weak job sentiment boosted bonds but weakened the dollar.

Several converging issues are at play:

In AI, markets increasingly focus on leverage, capital structure (internal vs. external funding), government support, and investment returns' sustainability. Companies like META, ORCL, and CRWV—highly leveraged or with weak cash flows—serve as leading indicators for AI-related trades. Massive AI debt issuance also heightens sector fragility.

Goldman Sachs warns this isn’t a "breaking point" but acts as a "speed limit" to market gains. For AI growth to meet expectations, three factors are critical:

More power supply; Expanded chip capacity; Increased capital investment.

US stocks hover just above key CTA sell triggers. Goldman notes CTA equity positioning remains near record highs, skewing risks downward. A breach could trigger systemic selling. Model projections suggest:

Sideways market in a week: $4.93B selling ($1.23B from US); Market rise: $3.97B selling ($2.06B from US); Market drop: $35.46B selling ($9.26B from US).

While Russell and DAX have breached key levels, Nasdaq 100 and S&P 500 (SPX) hold. SPX’s short-, medium-, and long-term supports are 6,700, 6,407, and 5,952, respectively.

Volatility control funds may turn slight sellers, with rising vol prompting marginal SPX net selling across scenarios. NAAIM exposure dipped 10 points to 90—still high but off peaks. Goldman’s prime brokerage data shows elevated leverage but neutral net exposure, with institutions eyeing dips outside AI capex.

Retail investors now drive short-term direction. Though still net buyers during Thursday’s drop, their pace slowed sharply versus Q3’s average. Strong retail inflows in September-October face headwinds from government shutdown risks, layoffs, and "K-shaped" economic divides eroding consumer confidence.

Bitcoin holding above $100K acts as psychological support. A break could spark retail liquidations, exacerbating systemic selling. Goldman’s traders see such "capitulation" as a potential year-end repositioning opportunity. Tactically, holding gamma is favored. The first step toward stability? A government reopening.