Goldman Sachs trader: Last Friday’s performance of the US stock market looked more like "protection" rather than "exit."

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Last Friday, the US stock market experienced significant volatility, and option trading volume hit a historic record. However, Goldman Sachs senior trader Lee Coppersmith said the market's performance was more like investors were scrambling to protect positions rather than exiting the market en masse.

Last Friday, trade and tariff-related news triggered concerns about a repeat of April's market turbulence. But in the view of Goldman Sachs trader Lee Coppersmith, while the options market was extremely active, spot stock trading was relatively calm, and S&P 500 trading volume was only 9% above the 20-day moving average, showing that investors were primarily managing risk through derivative instruments rather than massive stock sell-offs.

Data shows that total US options trading volume exceeded 100 million contracts for only the second time in history—the last instance was on April 4, when the market fell 5.97%. Put option trading volume reached the second-highest level in history, while call option trading volume set a new record, with over 60 million contracts changing hands.

(Put Option Trading Volume)

(Call Option Trading Volume)

Meanwhile, Coppersmith noted that although Goldman Sachs’ volatility fear index reached a high level of 9/10—the last time it reached that level was in mid-April—the implied volatility of the S&P 500 has not reached the levels seen in April or August, and implied correlation has not exceeded the two-year average.

Goldman traders believe both S&P 500 implied volatility and skew saw strong buying, also reflected in the Goldman trading desk's capital flows. This phenomenon mainly occurred at the index level rather than widespread single-stock selling.

Systematic Selling Trigger Points Raise Technical Concerns

One of the main market focuses is the key technical levels that could trigger systematic selling. Goldman estimates that systematic strategy funds have positions in US equities totaling nearly $220 billion.

Specifically, CTA strategies hold long positions in the S&P 500 of about $48 billion, close to the upper end of a multi-year range. The short-term trigger threshold is 6,580 points, which was breached last Friday; the medium-term threshold is about 6,290 points. If these key levels are breached, capital flows could turn negative.

Last Friday, dealers' gamma value experienced its largest drop in over three years. Although dealers remained net long γ in some areas, the extent was reduced. This change reflects the accumulation of structural risks in the market.

Consumer Finance Sector Under Significant Pressure

Consumer finance stocks became another focal point. High-yield consumer finance issuers saw trading activity rise to the highest level since early April, with related stocks experiencing corresponding volatility.

However, Goldman’s research department believes this weak performance is mainly due to special situations rather than a broad repricing of economic recession risks. The main reasons are as follows:

Broader service and retail stocks did not weaken synchronously, which is consistent with improving activity data and the overall healthy state of consumer balance sheets; even within consumer finance companies, weakness was concentrated in only a few issuers.

Goldman expects that this pressure will remain localized and not spread to the entire market.

Investor Sentiment Remains Resilient; Two Main Themes Continue

Before last Friday's volatility, US stock market investor sentiment was actually improving. Last week, net capital inflows totaled $14 billion, and Goldman’s sentiment indicator recorded +0.3, turning positive for the first time since February.

Passive capital inflow and retail margin debt remain one standard deviation above the 52-week norm, though last Friday’s price movements may have pulled the indicator back into negative territory.

Goldman traders believe that two dominant themes continue to drive the US stock market: the growth momentum brought by sustained AI development, and the drag caused by concerns over the labor market. These narratives will continue to dominate as third-quarter earnings season begins this week.

Major financial institutions will lead earnings reports on October 14, and by the end of the month, companies accounting for about 70% of the S&P 500’s market cap will have released their results. The market generally expects S&P 500 earnings per share to grow by 6% year over year, below the second quarter’s 11%, but Goldman’s research department expects another round of earnings beats.

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