Beware of pullback risks! Goldman Sachs warns: U.S. stocks are "overcrowded" and dip buying has weakened
Goldman Sachs' Scott Rubner warned that the U.S. stock market is about to face a downturn, as market participants have become saturated and the motivation to buy on dips is weakening. He pointed out that the dynamics of capital demand are changing, approaching a seasonally negative phase. Although the S&P 500 index has risen 3% since the beginning of the year and the market has shown resilience, Rubner believes that the ability to buy on dips is diminishing, and he expects $61 billion worth of U.S. stocks to be sold in the next month
According to the Zhitong Finance APP, Goldman Sachs' Scott Rubner warned that the U.S. stock market is about to face a downturn.
Rubner stated that current market participants have become saturated, and the motivation for buying on dips is weakening. The global market managing director and tactical expert had previously held an optimistic view of the market outlook for 2025, but he now predicts a negative turning point for the market. He mentioned that this is the "last bullish email" he sent out in the first quarter.
"Everyone has entered the market, including retail traders, 401(k) fund inflows, early-year asset allocation, and corporate funds," he said. "The dynamics of fund demand are changing rapidly, and we are approaching a seasonally negative phase," he stated in an email to clients.
Since the beginning of the year, the S&P 500 index has risen by 3%. Although this is roughly in line with levels from December last year, the market has actually shown significant resilience. Concerns triggered by DeepSeek and U.S. President Trump's tariff policies have failed to provoke a large-scale correction. Wednesday's higher-than-expected inflation data is the latest example, as the stock market quickly rebounded from intraday lows despite the continuous negative news.
However, Rubner stated, "What I am most certain of is that this strong ability to buy on dips is weakening." Among the demand slowdown "checklist" he provided, the downside risk for trend followers is particularly prominent. If the market declines, these commodity trading advisors (CTAs) are expected to sell about $61 billion of U.S. stocks in the next month, while in a bullish scenario, the buying scale is only about $10 billion.
Corporate stock buybacks remain a supporting factor for the market, but their activity window will close on March 16. Meanwhile, Rubner noted that hedge funds have reintroduced a significant amount of risk into the market, with last week seeing the largest net buying in global stock markets in two months.
In the past 22 trading days, the buying power of retail investors remains an unresolved mystery. These traders quickly seize any dip opportunity to buy, leading to "massive fund flows," with three days experiencing the most severe so-called "imbalances" in history. These early-year fund flows often gradually fade in March.
Rubner suggested focusing on tactical downside trading strategies, such as binary options and put spread options on the S&P 500 index, known as retrospective put hedging, or a trading combination involving the Euro Stoxx 50 index and the euro to U.S. dollar exchange rate