Goldman Sachs summarizes the top ten reasons for the "avalanche" in the US stock market, with recession concerns ranking first!

Wallstreetcn
2025.03.10 06:50
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Last week, the U.S. stock market generally declined, with the S&P 500 index falling nearly 3%, as hedge funds shorted at the fastest pace since November 2024. Goldman Sachs believes that concerns about an economic recession, tariff issues, and technical weakness are important reasons for the recent drop in U.S. stocks. Additionally, there are factors such as the repricing of AI themes, systematic selling by hedge funds, and reduced liquidity

After a turbulent week, the U.S. stock market suffered a sharp decline.

Last week, the U.S. stock market generally fell, with the S&P 500 index dropping nearly 3%. If it weren't for Federal Reserve Chairman Jerome Powell's remarks on Friday boosting market sentiment, the decline could have been larger. The Nasdaq 100 index fell 2.8%, and the Russell 2000 index dropped 3.7%.

Data from Goldman Sachs' equity sales trading department shows that hedge funds intensified their selling, shorting at the fastest pace since November 2024, with long-term investors net selling $5 billion. The data also indicates that the sell-off was primarily concentrated in the technology, financial, and consumer discretionary sectors.

A report from Goldman Sachs summarized the top ten reasons for the recent market turmoil, with concerns about economic recession, tariff issues, and technical weakness being significant factors.

Goldman Sachs Summary: The Top Ten Reasons for the U.S. Stock Market "Avalanche"

Here are the top ten reasons summarized by Goldman Sachs' trading department for the decline in the U.S. stock market:

  1. Growth Concerns: Weak economic data, including non-farm payrolls and the ISM manufacturing index, heightened market fears of an economic recession.
  2. Tariff Fatigue magnified by thematic re-pricing in AI: Ongoing trade tensions have left investors fatigued, while the re-pricing of the artificial intelligence theme has also exacerbated market volatility.
  3. Global Complexity: German and French government bond yields hitting highs, strong performances from JD.com and Alibaba in the Chinese market, and the rise of the QwQ-32B AI model.
  4. Technicals Weak: The S&P 500 index approached the 200-day moving average of 5732 points, but most major indices and leading individual stocks were also nearing technically "oversold" levels.
  5. Systematic Supply: Trend-following funds (CTAs) sold nearly $60 billion of U.S. stock delta exposure over the past week, with about $30 billion related to the S&P 500 index.
  6. Positioning Elevated: The total leverage ratio of hedge funds rose by 1.1 percentage points this week, reaching the 100th percentile for the past year; while the net leverage ratio remained relatively stable, at the 47th percentile for the past year.
  7. Liquidity very challenged: Market liquidity is extremely limited, hitting new lows.
  8. Long-Only Risk Reduction: Long-term investors reduced their risk exposure in relatively well-performing assets such as healthcare, utilities, and semiconductors
  9. Consumer Woes: Clothing retailers Abercrombie & Fitch, Foot Locker, Ross Stores, swimwear brand Victoria's Secret, and cruise companies are facing difficulties.
  10. Poor Seasonality: The market's seasonal performance is poor, and a rebound may not occur until March 14.

Hedge Fund Trends: Accelerating Short Selling

Goldman Sachs data shows that the recent bearish trend has accelerated, with total risk exposure reaching a historical high, while net risk exposure continues to shrink. The total leverage ratio of the U.S. fundamental long-short strategy increased by 0.3 percentage points to 206.9% (the 98th percentile over three years), while the net leverage ratio of the U.S. fundamental long-short strategy decreased by 2.1 percentage points to 51.3% (the 31st percentile over three years). Therefore, the fundamental long-short ratio decreased by 2.3% to 1.660 (equal to the five-year low).

Strategist Vincent Lin pointed out that hedge funds have net sold U.S. stocks for the fourth consecutive week (nine out of the past ten weeks), as short selling exceeded buying, with a ratio of 1.7 to 1. This week's total trading activity (representing short selling) is the largest increase in seven weeks.

Looking ahead to next week, the implied volatility of the S&P 500 index until March 14 (the day before the government or "shutdown") is 3%. The focus remains on tariff news and the seller conference season (concentrated in the industrial, consumer, and healthcare sectors).

Additionally, Wednesday's CPI data will be an important macro event, and the Federal Reserve will enter a quiet period before the March 18/19 meeting. On the micro level, the earnings season is basically over (except for some consumer goods companies that report later, as well as Oracle and Adobe). Investors should closely monitor these key events to gauge the market's future direction

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