A senior Goldman Sachs trader's post-mortem analysis reveals that the recent global risk-asset selloff was a multi-layered, cascading event that ultimately escalated into systemic liquidation.

According to Goldman’s Global Banking & Markets trader Rich Privorotsky, the market turmoil stemmed from four overlapping factors: the Fed’s unexpected hawkish pivot, a seismic shift in AI leadership from NVIDIA to Alphabet (Google), a crypto flash crash triggering retail capitulation, and finally, quant-driven selling pressure. What began as technical volatility spiraled into structural decline.

The trader emphasized that NVIDIA’s solid earnings, while strong, no longer anchor AI investment narratives. Instead, Alphabet’s Gemini-3 breakthrough—a "step-change model"—is reshaping the AI ecosystem, delaying competitors’ product cycles, raising capex needs, and clouding ROI visibility. This explains why enterprise software firms like Oracle failed to rally alongside NVIDIA.

Cryptocurrency volatility became a barometer for retail risk appetite, sparking chain reactions in unprofitable tech and AI-linked stocks. Meanwhile, trend-following funds (CTAs), holding over $500 billion in long positions since August, began unwinding aggressively, letting technicals override fundamentals in the short term.

Goldman’s charts suggest the S&P 500 E-mini could slide further toward 6,500. However, Privorotsky maintains that AI’s long-term value proposition remains intact, with labor-intensive firms leveraging automation for margin expansion emerging as ultimate winners.

**Fed’s "Stealth Hawkishness": The First Domino** Privorotsky highlighted the Fed’s puzzling stance amid mixed jobs data: steady payroll growth but a surprising unemployment rate rise to 4.44%. While youth labor influx drove the uptick, older demographics saw lower joblessness. Yet, with three-month average job additions sliding to 62,000 (Goldman’s internal tracker suggests just 39,000) and persistent downward revisions—especially August’s weak print—the Fed’s insistence on hawkishness stunned markets. December rate-cut odds evaporated, now priced at near-zero.

"This is a policy mistake," Privorotsky remarked.

**AI Leadership Shifts: Google’s "Winner-Takes-All" Threat** The tech selloff’s second layer wasn’t NVIDIA but Alphabet. Gemini-3’s disruptive potential is forcing rivals to delay roadmaps, inflate capex, and face uncertain ROIs—explaining why software stocks diverged from NVIDIA’s rally. The market now fears a "winner-takes-all" dynamic in AI models, with technicals dominating near-term action.

**Crypto Collapse: Retail’s "Diamond Hands" Crumble** The crypto crash wasn’t isolated. After years of "buy-the-dip" behavior ("diamond hands"), retail investors finally capitulated amid whale selloffs. This spilled over into speculative tech/AI stocks, exemplified by Palantir’s intraday 5.5% gain flipping to a 6% loss. Privorotsky noted: "When diamond hands stop HODLing, market structure has fundamentally shifted."

**Quant Carnage: Systematic Selling Goes Mechanic** The final blow came from systematic funds. CTAs, sitting on $500 billion in longs since August, triggered sell programs after key technical levels broke. Volatility-control strategies compounded the plunge as VIX ETN flows created a "short-tail, short-convexity" setup, amplifying downside. The result? A low-vol regime shattered by machine-led liquidation—explaining sudden, news-free nosedives.

**AI’s Capital Crunch: The Overlooked Risk** Privorotsky sidestepped "AI bubble" debates, focusing instead on rising capital costs. With a corporate debt wave funding AI data centers, he questioned whether spread-tightening still justifies carry trades. Cheap capital fueled AI expansion—now, pricier funding may slow growth, an underappreciated risk.

**Outlook: Three Stabilization Triggers** Privorotsky sees a bottom requiring: 1. CTA positioning flushed out 2. Excessive retail longs purged 3. At least two of: crypto stability, Fed dovish clarity, or policy/market support for AI capex.

He holds his 6,500 E-mini target but stresses AI’s long-term promise lies in adopters—non-tech firms boosting productivity.