Goldman Sachs warns that as the historically worst-performing month of September arrives for U.S. equities, a key market support mechanism—systematic demand—has essentially been depleted, signaling that this month will present significant challenges.

Goldman Sachs' liquidity analysis team recently noted in their research that CTA (Commodity Trading Advisor) positions have reached 100% maximum capacity, meaning the historically weak September period will lack supportive fund inflows. More critically, potential market declines could trigger up to $73.69 billion in selling pressure, creating substantial asymmetric downside risk.

However, Goldman Sachs emphasizes that market support is not entirely absent. Institutional investors maintain relatively moderate overall positioning, dealers hold record long gamma exposure, and individual stocks show extremely low correlation with broader indices—factors that will collectively provide cushioning effects, likely keeping index-level volatility moderate and limiting downside depth.

**Seasonal Headwinds and CTA's "Time Bomb"**

September's "seasonal panic" has become consensus among market participants.

Goldman Sachs' review of data since 1928 shows September as the S&P 500's worst-performing month, with an average return of -1.17%. More concerning is that the second half of September represents the year's worst two-week period, with average returns plummeting to -1.38%.

Against this fragile seasonal backdrop, a more worrying signal has emerged. CTA funds, which served as important drivers of market gains in recent months, have exhausted their buying power.

Goldman Sachs models indicate CTA U.S. equity positions have reached 100% "maximum capacity" levels, meaning they are no longer active market buyers. Their purchasing power has plummeted from $27.66 billion in July to $12.56 billion in August, with September's full-month U.S. equity purchases expected to shrink further to just $2.96 billion.

Should markets enter a downward trajectory over the next month, CTA funds may be forced to liquidate positions. Model calculations show:

**Next 1 week**: If markets decline into a downward channel, CTA models would sell $22.25 billion in global equities (including $4.84 billion in U.S. stocks).

**Next 1 month**: In case of deep market decline, CTA models could frantically dump up to $217.92 billion in global equities, with $73.69 billion in U.S. stocks.

This asymmetric downside risk represents a core variable investors must closely monitor throughout September.

**Institutional Investors Cautious but Moderate Positioning May Buffer Declines**

The analysis reveals institutional investors have been net sellers of U.S. equities for two consecutive months and maintain cautious stances toward the approaching September period.

Despite recent market rebounds, Goldman Sachs sentiment indicators remain negative, suggesting that from a historical fund flow perspective, overall positioning remains relatively balanced, with most investor groups still having room for position increases.

Goldman Sachs believes that unless major fundamental shocks occur, current lukewarm positioning levels will make any market declines relatively moderate.

Notably, hedge fund activity confirms this cautious sentiment.

While fundamental long-short strategy funds' net leverage has risen sharply over recent months, it remained essentially flat in August, still below February's yearly peak. U.S. long-short strategy funds' net leverage sits only at the 32nd percentile over a five-year timeframe, below average levels, indicating weak directional betting appetite.

Therefore, Goldman Sachs judges that absent major fundamental shocks, current moderate positioning levels will make any market pullbacks relatively "mild and brief."

**Market Internal Divergence: Hedge Fund Rotation to Emerging Markets, Retail Chasing Passive Funds**

The analysis highlights significant divergence among market participants.

Data from Goldman Sachs' prime brokerage business shows hedge funds have rotated into emerging market equities with unprecedented force over the past month, led by Chinese assets.

August saw nominal net buying flows into broader emerging markets and China that exceeded ten-year averages by three standard deviations, driven entirely by long purchases. Capital concentrated mainly on Chinese technology ETFs and major blue-chip stocks like Alibaba.

This indicates that as U.S. equities face challenges, global capital is actively refocusing and allocating to assets in other regions worldwide.

Meanwhile, although retail investors are increasingly active in individual stock trading, their primary capital remains faithfully flowing into passive funds such as ETFs.

This trend intensifies divergence between active and passive funds, and due to ETF construction methods, these funds remain highly concentrated in large technology stocks like the "Magnificent Seven" U.S. tech giants.

Data shows that since 2019, $4.09 trillion has flowed into U.S. money market funds, $2.46 trillion into U.S. bond funds, while only $247 billion entered U.S. equity funds.

This means money market fund inflows were 16.5 times larger than equity fund inflows. Despite S&P index gains, the "cash is king" reality cannot be ignored.

**Market "Stabilizers": Internal Structural Forces Suppressing Volatility**

Despite challenging macro conditions, market internal structure provides several key "stabilizers."

First, dealers are in record long gamma positions. Option position exposures requiring hedging increased by $10.9 billion within ten days, reaching historic highs. This state means dealers will serve as market volatility "absorbers," buying during declines and selling during rises, thereby constraining indices within certain ranges and cushioning selling pressure.

Second, market correlation sits at nearly 30-year lows. This indicates highly divergent individual stock movements, with markets no longer following "beta trends" of synchronized rises and falls, but rather becoming an "alpha market" dependent on selective stock picking for profits. This aligns with institutional-level active stock selection and continued retail flows into passive funds.

Finally, volatility itself has reached "extremely cheap" levels. The S&P 500's one-month implied volatility approaches yearly lows, meaning option pricing is extremely inexpensive. Given September's dense macro event calendar, Goldman Sachs believes using options for hedging offers excellent cost-effectiveness.