Goldman Sachs top trader: US stocks are nearing the CTA sell trigger point, market stabilization depends on government reopening

Goldman Sachs' top trader and head of the Delta-One department, Rich Privorotsky, believes that the U.S. trading session on Thursday clearly exhibited a "risk-averse" sentiment, with AI, technology, and unprofitable tech companies facing selling pressure.

The Challenger job-cut report shows that the scale of layoffs in the U.S. in October this year reached the highest level for the same period since 2003, primarily from the warehousing and technology sectors, which likely reflects the labor substitution effect driven by AI. Although this data is quite noisy, it echoes the narrative that "automation is beginning to impact employment structure" from a macro trend perspective. The weak employment atmosphere has driven a rebound in the bond market but weakened the dollar.

Currently, multiple issues are converging:

• In terms of AI, the market is increasingly focused on leverage levels, capital source structures (internal vs. external financing), government support, and the return on investment and sustainability of AI investments.
• Companies like META, ORCL, and CRWV still represent high leverage or weak cash flow, and thus may serve as leading indicators for AI-related trades.
• The massive issuance of AI debt also makes the entire sector more vulnerable.

Goldman Sachs points out that while this has not reached a "breaking point," it has clearly become a "speed limit factor" hindering market upward movement.

For AI growth to meet market expectations, it must almost certainly have the following three points:

• More power support;
• More chip production capacity;
• More capital investment.

Currently, the U.S. stock market is hovering just above the key trigger point for CTAs. Goldman Sachs notes that CTA stock market positions remain close to historical highs, indicating a downward bias in the market. Once the threshold is breached, it will lead to significant systemic selling pressure. According to Goldman Sachs' model predictions:

• If the market consolidates for a week: selling volume is approximately $4.93 billion (of which $1.23 billion comes from the U.S.)
• If the market rises: selling is $3.97 billion (of which $2.06 billion comes from the U.S.)
• If the market falls: selling is $35.46 billion (of which $9.26 billion comes from the U.S.)

The Russell and DAX indices have fallen below key levels, while the Nasdaq 100 and S&P 500 have not yet breached. The key support levels for SPX in the short, medium, and long term are 6700, 6407, and 5952, respectively.

Goldman Sachs states that volatility control funds are expected to become slight sellers. The increase in volatility means that SPX will be a slight net seller across various scenarios in the coming week.

NAAIM (National Association of Active Investment Managers) exposure has dropped by 10 percentage points to 90, still a high level but below its peak.

Goldman Sachs' prime brokerage accounts indicate that overall leverage is high, with net exposure neutral. Institutional investors still intend to buy on dips during pullbacks, especially in sectors other than AI capital expenditures.

Goldman Sachs' executives indicate that the short-term market direction mainly depends on retail investors. In Thursday's decline, they still had net buying, but the pace was significantly lower than the average over the past three months. Previously, retail buying was strong in September and October, but risks of a U.S. government shutdown, increased layoffs, and the "K-shaped economy" phenomenon (meaning a widening gap between the rich and poor and industry differentiation) are undermining consumer confidence, leading to a general lack of confidence among consumers Bitcoin remains above $100,000, becoming a psychological support level. If this price level is breached, retail investors may begin to sell off popular holdings, further triggering systemic selling pressure. After such "capitulation selling" occurs, top traders at Goldman Sachs believe that a more attractive repositioning opportunity may arise by the end of the year. Tactically, the preference now leans towards holding Gamma. The first step towards true market stabilization will come from the government reopening.