Goldman Sachs top trader: U.S. stocks are nearing CTA sell trigger levels; market stability depends on government reopening.

Goldman Sachs' top trader, Delta-One department head Rich Privorotsky believes that the U.S. trading session on Thursday clearly showed a “risk-averse” sentiment, with AI, tech, and unprofitable tech companies all under selling pressure. The Challenger Layoff Report shows that U.S. layoffs in October this year reached the highest level for the same period since 2003, mainly from warehousing and technology industries. This likely reflects AI-driven labor substitution effects. Although this data is quite noisy, on a macro level it echoes the narrative that “automation is beginning to impact employment structures.” The weak employment atmosphere drove a rebound in the bond market but weighed down the U.S. dollar. Currently, multiple issues are converging: - Regarding AI, the market is increasingly focused on leverage levels, capital sourcing structure (internal vs. external financing), government support, and the rate of return and sustainability of AI investments. - Companies like META, ORCL, and CRWV are still representative of high leverage or weak cash flow, and may thus be leading indicators of AI-related trades. - Large-scale AI debt issuance is also making the entire sector more vulnerable. Goldman Sachs points out that while this hasn’t reached a “breaking point,” it has clearly become a “speed limiting factor” for market upside. For AI growth to meet market expectations, almost the following three factors must be present: - More power supply; - More chip production capacity; - More capital investment. The U.S. stock market is currently hovering just above the crucial CTA trigger level. Goldman Sachs notes that CTA equity positions remain close to historical highs, which means the market is biased toward the downside. Once this threshold breaks, it will trigger significant systemic selling pressure. According to Goldman Sachs’ model predictions: - If the market moves sideways for a week: approximately $493 million in sales ($123 million from the U.S.) - If the market moves up: $397 million in sales ($206 million from the U.S.) - If the market moves down: $3.546 billion in sales ($926 million from the U.S.) The Russell and DAX indices have already breached key levels, while Nasdaq 100 and S&P 500 have not yet fallen below. SPX’s short-, mid-, and long-term critical support levels are 6700, 6407, and 5952, respectively. Goldman Sachs says volatility-controlled funds are expected to be modest sellers. Rising volatility means SPX will be a slight net sell under various scenarios over the next week. NAAIM (National Association of Active Investment Managers) exposure fell 10 percentage points to 90, still a high level but below its peak. Goldman Sachs’ prime brokerage accounts show overall leverage remains high, net exposure is neutral. Institutional investors are still interested in buying dips during pullbacks, especially in sectors other than AI capital expenditures. Goldman Sachs management points out that short-term market direction mainly depends on retail investors. During Thursday’s decline, they were still net buyers, but at a much slower pace than the three-month average. Retail buying was strong in September and October, but risks of a U.S. government shutdown, rising layoffs, and the phenomenon of “K-shaped economy” (i.e., increasing wealth and industry polarization) are hitting consumer confidence, which is generally weak. Bitcoin remains above $100,000, serving as a psychological support level. If this price fails to hold, retail investors may begin selling popular holdings, further triggering systematic selling pressure. After such “capitulation” selling occurs, Goldman’s top traders think it is possible to see more attractive re-entry opportunities at year-end. Tactically, current inclination is to hold Gamma. The first step for real market stabilization will come from the government reopening. Risk Disclaimer The market is risky, and investments must be approached with caution. This article does not constitute personal investment advice, nor does it take into account individual users' specific investment objectives, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article meet their particular circumstances. All investments made accordingly are at your own risk.