The Last Hurrah? Goldman Sachs: Retail investors are no longer "buying the dip," but are instead "chasing the frenzy."

As the stock market reaches new highs, Goldman Sachs warns that retail investor behavior has undergone a substantial shift—from “buying the dip” to “speculative frenzy”; the market will face some degree of downward pressure in the short term to digest the bubbles accumulated during its recent climb to historic highs.

Goldman Sachs’ latest fund flow report points out, with CTA demand fading, month-end pension selling pressure arriving, and passive buying driven by retail tax refunds subsiding, the market may face correction pressure in the near term.

At current price levels, market makers are in a positive gamma position, with buying low and selling high operations somewhat smoothing out overall market volatility. However, as retail investors’ enthusiasm for leveraged semiconductor products surges, the implied volatility of related stocks and sectors remains high.

Looking ahead to May, corporate buybacks are expected to provide moderate support. Driven by long-term growth narratives, a busy IPO season, and earnings season catalysts, Nasdaq is expected to outperform the S&P 500.

CTA Has Turned from Buyers to Sellers; Systematic Demand Fading

Over recent weeks, CTA (trend-following strategies) buying has provided clear and sustained demand support to the market.

Data shows that over the past month, the increase in holdings among major systematic strategies in the US was the second largest since 2016. Systematic strategies collectively bought nearly $80 billion in US stocks, with CTA net long positions at $44 billion.

However, this demand has been exhausted, and CTA has now slightly shifted to net sellers. The S&P 500 is currently 3.75% above its short-term threshold and 4.83% above its medium-term threshold. Once these thresholds are breached, CTA is expected to sell around $50 billion in US stocks to flatten its exposure.

Calculations suggest that in the next week, regardless of market direction, CTA will be net sellers: around $7.7 billion if the market is flat, $2.3 billion if the market rises, and as much as $17.5 billion if the market falls.

Strong Month-End Pension Selling Pressure, High Institutional Positioning, Rising Risk Appetite

It is expected that US pensions will sell about $27 billion in US stocks at month-end. This ranks in the 86th percentile of all month-end estimates over the past three years, and the 93rd percentile in historical data since 2000.

Notably, this is the largest single month-end sale estimate (excluding quarter-end) since 2000.

After the largest deleveraging since September 2025 last week, institutional overall leverage fell 0.7 percentage points to 308.3% as of Monday’s close (84th percentile over one year, 97th percentile over five years). Non-deal participants’ positions in US index futures are also at the 89th percentile over one year.

Current institutional exposure remains high, reducing the likelihood of short covering triggers. This supports expectations for a correction in the short term, but longer term, this may help remove bubbles accumulated during the market's straight-line climb.

Goldman Sachs’ sentiment indicator rose to +1.5 last week, showing that investor positions are already high.

Meanwhile, the risk appetite indicator tracking global market risk sentiment has climbed from the 34th percentile a month ago to the 99th percentile in five-year history.

The rapid rise in this index could be a warning signal; once market consensus is challenged, investors could face significant correction risk.

Index Implied Volatility Falls but Single Stock and Thematic Volatility May Increase

Changes in retail behavior require close attention. May has historically been the month with the largest net redemption of stock mutual funds and ETFs. Tax effects will further reduce passive fund inflows—i.e., the buying driven by tax refund money.

At the same time, retail investors are increasingly concentrating leveraged bets on specific sectors, rather than simply using leveraged index products.

Data shows retail participation in 3x inverse semiconductor ETF (SOXS) and 3x long semiconductor ETF (SOXL) is at the 97th and 99th percentiles over the past five years respectively. High leverage participation will exacerbate sector volatility.

Index implied volatility has fallen sharply since recent geopolitical conflicts began, but average one-month implied volatility for S&P 500 component stocks remains firm—reflecting that investors are shifting from relying on beta returns to actively selecting stocks.

The difference between average single stock volatility and index volatility is at historical highs—the 99th percentile—over one- and five-year look-back periods.

From the perspective of market makers’ gamma exposure, market makers are currently in a positive gamma position near spot prices, and to maintain risk neutrality their operation mode is “buy low, sell high,” smoothing price volatility to some extent.

Nasdaq’s Seasonal Advantage and Corporate Buybacks Provide Support

Not all signals are pessimistic. With companies continuously releasing earnings and entering buyback windows, stock buybacks will re-enter the market from this week onwards.

Currently about 40% of listed companies are in an open buyback window, expected to last until June 12; total buyback authorization since the start of 2026 has reached $502.3 billion.

Seasonal data also supports Nasdaq. May is Nasdaq’s third best month, but the third worst month for the S&P 500.

Goldman Sachs believes that focusing on long-term growth narratives, intensive IPO season and earnings season catalysts will help this historical pattern continue this year.

Risk Warning and DisclaimerThe market involves risk; investment requires caution. This article does not constitute personal investment advice, nor does it take into account the specific investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article suit their particular situation. You invest accordingly at your own risk. ```