Traders at Goldman Sachs Group Inc said on Saturday that the violent selloff in U.S. equities has pushed market panic to an extreme level.

The bank's volatility fear index surged to 9.57 out of a maximum of 10 on Thursday, breaking through the "panic zone" threshold of 9.5, marking the third-largest single-day increase on record. Combined with Wednesday's sharp drop, the two-day cumulative volatility set an all-time record.

Historical data from Goldman Sachs shows that each time the index previously broke above the 9.5 threshold on 15 occasions, the S&P 500 rose an average of 4.6% over the following three months, with an 80% hit rate; over a six-month horizon, the average gain was 9%, with stocks rising in 73% of cases.

U.S. stocks already rebounded on Friday, with the S&P 500 gaining 0.7% as dip buyers stepped in amid improving economic data.

Two-Day Volatility Sets Record, Panic Rapidly Intensifies

Goldman Sachs trader Lee Coppersmith said the two-day cumulative volatility was the largest on record, "fully illustrating how quickly the market shifted from relief to outright panic."

According to Goldman Sachs traders, the sharp reversal stemmed from massive demand for downside protection ahead of Tuesday's U.S. midterm elections. Investors had previously sold off hedge positions during the post-election rally, leaving portfolios severely unprotected when stocks turned lower. As share prices fell and forced hedge fund liquidations spread, investors rushed to buy back the protective positions they had just sold, further amplifying market volatility.

Options Market Panic Signal: Put Option Volume Hits Record High

This concentrated surge in hedging demand left a clear mark on the options market. Cboe put option volume exceeded 11 million contracts on Thursday, setting a single-day all-time record and surpassing the previous peak set in April 2025. Index puts accounted for the bulk of the volume, while single-stock put volume also ranked as the fourth-highest in history, highlighting the intense concentration of demand for broad-based protection.

Coppersmith noted that "yesterday's move was less about deteriorating fundamentals and more about a deeply unfavorable technical setup and the pressure of forced re-hedging."

Historical Patterns Point to Medium-Term Opportunity, but Short-Term Caution Still Warranted

Although the historical data presents relatively optimistic medium-term signals, Goldman Sachs traders still urged investors to remain cautious. They noted that as the market continues to search for a bottom, more positioning still needs to be unwound.

"As forced selling gradually subsides, the market's allocation appeal begins to rise," Coppersmith wrote. "This doesn't necessarily mean rushing back into risk assets, but the potential opportunity on the other side is becoming increasingly hard to ignore."

Goldman Sachs' analysis suggests that extreme volatility and forced selling may ultimately create entry opportunities for investors willing to ride out short-term turbulence, provided the market completes its current deleveraging process.