The S&P 500 has fallen for five consecutive weeks, breaking through key technical support levels. Traders at Goldman Sachs stated plainly that "the data is not optimistic." However, potential catalysts for a rebound are building, including signs that systematic selling is nearly exhausted, month-end pension fund buying is emerging, and CTA net short positions have reached a record scale.
Senior Goldman Sachs trader Cullen Morgan wrote in a weekend report, "Friday was one of the most uncomfortable trading days in recent memory." The S&P 500's five-week losing streak is a rare occurrence since 1970, with this downturn's persistence even exceeding the selloffs during the 2020 COVID-19 shock. Goldman Sachs' U.S. Stock Volatility Fear Index recently registered a reading of 9.2 out of 10, marking its 17th consecutive day in the "panic zone" (above 8.5). This is one of the longest continuous fear streaks in the past 15 years.
Meanwhile, the index has fallen below all its key moving averages and technical support levels, including thresholds that trigger selling by CTA strategies. The Nasdaq Index has retreated more than 11% from its all-time high, officially confirming it has entered a correction phase.
Cullen Morgan pointed out that a five-week losing streak for the S&P 500 has been "few and far between" since 1970, with the most recent instance occurring during the 2022 recession scare. It is noteworthy that neither the 2020 COVID crash extended to a fifth week—placing the current decline's duration in a historically rare territory. Forward-looking return calculations based on these historical cases by Goldman Sachs yielded conclusions that are "not encouraging." Morgan acknowledged that most charts tracked by the firm have not yet flashed clear oversold signals, but some indicators are beginning to show signs of capitulation.
Multiple internal Goldman Sachs indicators show market fear is at historical extremes: - **Hedge Funds Sustaining Net Selling**: The firm's prime brokerage weekly report shows hedge funds have been net sellers of U.S. stocks for six consecutive weeks. The recent net selling volume ranks as the third largest in the past decade, primarily driven by long and short unwinding in single names, with contributions from increased short positions in macro products. - **Sharpest Net Leverage Drop in Nearly a Year**: U.S. fundamental long/short net leverage fell by 3.1 percentage points this week, the largest weekly decline since early April. - **Fear Index Hits 15-Year Record**: The Goldman Sachs U.S. Stock Volatility Fear Index reached 9.2 out of 10, remaining in the panic zone for 17 straight days, one of the longest such streaks in 15 years. - **Sentiment Indicator Nears Historical Buy Signal**: The Goldman Sachs U.S. Equity Sentiment Indicator fell to -0.9 this week, reflecting a significant reduction in overall market equity exposure. Historical data shows that when the sentiment indicator falls below -1, subsequent stock returns tend to be above average, with the signal becoming more reliable when it drops further below -1.5.
From a technical perspective, short-selling pressure is nearing historical extremes. - **Gamma Shorts Peak**: Following last week's record expiration of over $5 trillion in triple-witching options, market makers' gamma positions plummeted. As of Friday's close, market makers held a net short gamma position exceeding $7 billion, the second-lowest level on record, implying the potential for accelerated moves in either direction. - **CTAs Near Long Reversal Threshold**: Goldman Sachs estimates that systematic strategy investors have sold approximately $85 billion in U.S. stocks over the past 30 trading days, nearing a historical record. Current CTA net short positions stand around $37 billion. The report notes, "There is asymmetry to the upside—over the next month, we expect CTAs to be buyers under any scenario," meaning any positive news could trigger a wave of short covering. - **Nasdaq Signal**: In the Nasdaq 100 Index, fewer than 15% of constituent stocks are currently trading above their 50-day moving averages. This level has historically often preceded short-term rebounds.
A notable structural feature is that despite the intense market feeling, the realized volatility based on closing prices remains below 15. However, the one-month implied volatility for the S&P 500 has jumped to 26. This spread is "one of the widest we have ever seen"—a divergence indicating that demand for option protection far exceeds what the actual price volatility suggests.
Amid the persistent decline, the report highlighted several potential structural catalysts that could alter the market's direction: - **Month-End Pension Rebalancing**: Goldman Sachs models project U.S. pension funds will buy approximately $19 billion in U.S. stocks at month-end, placing this activity in the 89th historical percentile. - **Seasonal Trends**: Since 1950, the S&P 500 has historically been a seasonally strong month. - **Options Market Pricing**: Despite the shortened Easter holiday week, the options market is pricing in an implied weekly move for the S&P 500 exceeding 3.4%, one of the largest single-week implied volatilities in the past five years.
Overall, while rebound momentum is building as short pressure nears extreme levels, a sustained recovery is contingent on a de-escalation of geopolitical tensions. The broader outlook for U.S. stocks remains uncertain.