US stocks are nearing new highs, but funds are still on the sidelines? Nomura reveals a "negative risk triangle".

U.S. stocks are hovering near record highs, but market sentiment is showing a rare divergence from price action—low positioning, rising hedging demand, and institutional investors generally remaining on the sidelines. Nomura strategist Charlie McElligott attributes the core pressure behind this phenomenon to a triple-layered "negative risk triangle" and warns of a potential deleveraging trigger in the market.

In its latest research report, McElligott points out that the so-called "negative risk triangle" refers to the combined pressure from three concurrent risks currently facing the market: geopolitical tensions, upward pressure on interest rates, and uncertainty about the inflation outlook. These three risks overlap, resulting in institutional investors maintaining extremely low net exposure levels—according to Goldman Sachs Prime Brokerage data, the net leverage ratio of US fundamental long-short funds is only at the 6th percentile of the past year, having fallen back to near the lows seen around Liberation Day. At the same time, Goldman Sachs' sentiment indicator has returned to negative territory, hitting a new low since March.

The subdued market sentiment is also reflected in the derivatives market. John Flood, head of equity sales and trading for the Americas at Goldman Sachs, pointed out that every time the S&P 500 attempts to break new highs, the volatility of the intraday rally is almost twice that of the decline, and the correlation between implied volatility of call options and the spot market is significantly higher than the historical average—not the behavior expected of a "fully positioned" market. Furthermore, short positions in Nasdaq futures have increased by 35% since mid-June, and the median short position in S&P 500 components is also at a high level.

"Negative Risk Triangle": Triple Pressures Suppress Emotions

McElligott clearly attributes the current market downturn to a triple downside risk pressure: geopolitical tensions, the threat of persistently rising interest rates, and uncertainty surrounding the inflation path.

This assessment aligns closely with Goldman Sachs' observations. John Flood stated that these three concerns appeared in almost every conversation he had with clients. Following the historic momentum collapse in July and the dismal performance in August, investors generally lacked "offensive intent," with both positions and sentiment under pressure.

John Schlegel, head of positioning intelligence at JPMorgan Chase, also pointed out in his latest research report that despite market volatility last week, overall positioning remained largely unchanged, with both retail and institutional sentiment showing signs of turning downwards or stagnating. Goldman Sachs Prime Brokerage data shows that the total leverage and net leverage of US fundamental long/short funds are 207% and 49.8% respectively, ranking in the 20th and 6th percentiles over the past year, and in the 59th and 10th percentiles over the past three years.

Unwinding of yen carry trades: another source of "invisible pressure" on the stock market

In addition to the triple risk narrative, McElligott and several Goldman Sachs traders also pointed to another potential source of pressure: the accelerated unwinding of yen carry trades.

Rich Privorotsky, head of Goldman Sachs Delta-One, pointed out that US Treasury Secretary Bessenter's recent stance has been unusually clear, stating, "I am the house now...you can bet against me," and adding that the Treasury Department has an informational advantage in understanding the actions of Japanese policymakers and the Bank of Japan. Against this backdrop, the market is betting on the Bank of Japan tightening policy and capital repatriation, leading to a continued appreciation of the yen.

Privorotsky believes that the more noteworthy second-order effect for the stock market lies in the fact that as yen-funded carry trade positions are unwound and flow back into the Japanese bond and stock markets, related funds will flow out of the US stock market. He bluntly states, "The S&P 500 and large-cap tech stocks have recently exhibited a strange heaviness, lacking a clear fundamental explanation—this may simply be due to the quiet dissipation of leverage and carry trades."

AI-powered options "mystery buyers" reappear.

Despite the overall cautious sentiment, some noteworthy contrarian signals have emerged in certain corners of the market. McElligott revealed that since the market reopened last Friday and after the Labor Day holiday, Nomura's trading desk has observed a large number of Flex Call options traded on several "concentrated AI" stocks, involving the very stocks that were subject to massive liquidations during this summer's crash.

According to Nomura's tracking data, this "mystery buyer" has accumulated approximately $315 million in option premiums, $110 million in Delta exposure, and $5.8 million in Vega exposure. In the past 48 hours, related stocks have rebounded sharply, including AMD (+10.9%), INTC (+14%), and CRWV (+18%).

This phenomenon of "AI/technology options buying returning" is once again generating a positive correlation dynamic of "spot price increases and volatility rising in tandem." After the volatility of individual technology stocks was severely impacted previously, this dynamic is once again making a positive contribution to volatility dispersion trading (empty correlation strategy).

The South Korean market is also recovering, with funds flowing into the semiconductor industry at an accelerated pace.

The same logic of "buying more shares" has also been validated in Asian markets. McElligott pointed out that the South Korean market recorded its second-largest single-day net inflow of foreign capital since data became available (combined with record stock buybacks) after reopening on Sunday/Monday, second only to the day of large-scale "buying on dips" on July 31.

This echoes the signal of renewed buying in AI options in the US market—institutional funds are accelerating their return to the South Korean, semiconductor, and memory sectors. McElligott believes this phenomenon "deserves close attention."

However, he also noted that as net exposure recovers from extremely low levels, investors "have something to hedge with." The skew of 3-month call options has now risen to the 91st percentile historically, indicating that the market is beginning to insure for a potential upward breakout, but the overall deleveraging trigger threshold remains very close.

Goldman Sachs holds a more optimistic view: fundamentals and IPOs may act as catalysts.

In contrast to McElligott's cautious approach, Goldman Sachs' John Flood assessment was significantly more optimistic, believing that the current cautious sentiment had over-priced in the risks.

From a fundamental perspective, Flood points out that the earnings per share of S&P 500 companies will grow by about 30% year-over-year in the second quarter of 2026 (the latest full earnings season); earnings of hyperscale cloud service providers and AI infrastructure companies will grow by 54% year-over-year, accounting for about 50% of the overall earnings growth of the S&P 500; and excluding the energy sector, the earnings of the remaining companies will grow by 14% year-over-year.

However, the current market reaction to this strong fundamentals is clearly insufficient: while mutual funds hold a relatively low percentage of cash, the absolute size remains above the historical average; institutional investors are generally underweight on AI-related stocks; and individual investor sentiment remains bearish. Flood believes that the upcoming IPO wave could be a catalyst to reactivate institutional and retail investors' "offensive" strategy.

Meanwhile, McElligott left another warning: if momentum-based CTA strategies continue to lose trend signals in sideways stock index futures, the distance between bullish signals and "deleveraging trigger points" in many global futures is shortening, and once the market weakens, it will produce a trend-following selling effect similar to "synthetic negative Gamma".

Risk Warning and DisclaimerInvesting involves risk; please exercise caution. This article does not constitute personal investment advice and does not 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 are suitable for their specific circumstances. Any investment decisions made based on this information are at your own risk.