The U.S. government shutdown crisis is about to be resolved, and an epic short squeeze in the U.S. stock market is imminent?

With the resolution of the U.S. government shutdown crisis, a key macro uncertainty has been eliminated, and market sentiment has quickly turned optimistic.

According to Xinhua News Agency, U.S. media reported on November 9 that the U.S. Senate has reached an agreement to end the federal government "shutdown." According to CCTV News, on the evening of November 9, as the U.S. federal government had been "shut down" for 40 days, President Trump stated to the media while returning to the White House, "It looks like we are very close to ending the 'shutdown.'"

The news reversed market expectations, causing U.S. stock index futures to surge, with S&P index futures briefly breaking through 6,800 points, nearing historical highs. The market generally expects a strong rise in U.S. stocks when trading opens on Monday. The previous week, affected by the cooling of the artificial intelligence boom, renewed concerns about economic growth, and the government shutdown deadlock, U.S. stocks experienced their worst week since April, with the Nasdaq 100 index down 3.0% and the S&P 500 index down 1.6%.

The resolution of this shutdown crisis has the most direct impact of approximately $1 trillion in funds expected to flow back from the U.S. Treasury General Account (TGA) into the economic system, injecting massive liquidity into the market. This key change is reversing the previously pessimistic trading logic. A strong year-end rebound driven by liquidity, or even an epic short squeeze, may already be on the horizon.

Market shorts under pressure, institutional positions at historical lows

According to observations from Goldman Sachs' trading department, the current market structure has laid the groundwork for a potential short squeeze. Despite the recent weak performance of stock indices, the open interest in S&P 500 index futures has increased by $21 billion, indicating that the market has added long positions rather than being dominated by short covering.

Additionally, market positioning data shows a clear divergence. Over the past four weeks, long-term institutional investors (LOs) have continued to net sell, with a cumulative scale of about $8 billion, while hedge funds (HFs) recorded a net purchase of $1.8 billion during this period.

However, Goldman Sachs' internal models show that the overall positioning of institutional investors has not rebounded and remains at low levels similar to those reported by the U.S. Commodity Futures Trading Commission (CFTC) on September 23, akin to the situation at the end of 2024. This light positioning means that once market sentiment completely reverses and continues to rise, these institutions may be forced to chase higher prices, thereby amplifying the gains and triggering a large-scale short squeeze.

According to a previous article from Wall Street Insight, as of last Friday, the balance of the Treasury General Account (TGA) has surpassed $1 trillion for the first time, reaching a nearly five-year high since April 2021. This means that over the past three months, the Treasury has withdrawn more than $700 billion in cash from the market—soaring from about $300 billion in July to the current level.** Since the government shutdown is the main driver of liquidity tightening, once the shutdown ends, the Treasury will begin to deplete its massive TGA cash balance, releasing hundreds of billions of dollars in liquidity into the economy.

This liquidity release could trigger a massive buying spree for risk assets. A similar scenario played out in early 2021 when the accelerated depletion of the Treasury's cash balance amounted to "invisible quantitative easing," driving a significant rise in the stock market. This script may repeat itself in 2025 to 2026.

Once the government restarts, the release of pent-up liquidity coinciding with the year-end may drive a rebound in liquidity-sensitive assets such as Bitcoin and small-cap stocks, as well as nearly all non-AI assets. The worse the recent situation, the more reserve liquidity will be released in the medium term.

Goldman Sachs expects the government shutdown is most likely to end around the second week of November. Key pressure points include the salaries of air traffic controllers and airport security personnel due on October 28 and November 10—similar disruptions in 2019 ultimately contributed to the end of that shutdown.

Tech Stocks Stabilize After Pullback, Anxiety and Opportunity Coexist

According to Goldman Sachs technology, media, and telecommunications (TMT) sector expert Peter Callahan, tech stocks recently experienced their largest single-week pullback since April, driven by a complex set of factors. These include high valuations for tech stocks (the NDX had a forward P/E ratio exceeding 28 times as of last week), disappointing earnings reports from some companies, macroeconomic uncertainty, and market doubts about AI investment returns and execution capabilities.

Although the Nasdaq and leading stocks like Nvidia rebounded from the 50-day moving average towards the end of last week, helping to stabilize market sentiment, investors still need to navigate a series of "walls of worry" before the year-end, including interest rate policies, employment data, and AI prospects (especially Nvidia's earnings report on November 19). However, Peter Callahan believes that as the core concern of the government shutdown is alleviated, if other issues can also gradually clarify, it may create a favorable backdrop for a year-end rebound.

The performance of the consumer and industrial sectors further reveals the complexity of the economic fundamentals. Goldman Sachs consumer sector expert Scott Feiler points out that sentiment in the consumer space has clearly shifted, with companies that underperform expectations facing severe punishment, while those that exceed expectations can only achieve marginal returns. Companies generally report facing operational challenges, partly due to the impact of the government shutdown, partly related to changes in the consumption patterns of the 25-35 age group, and also hampered by consumer confidence dropping to near historical lows.

The industrial sector is similarly full of uncertainties. According to expert Ryan Novak, the historically strong start in November has not materialized, and the volatility of the earnings season has intensified. The market is highly focused on companies' specific guidance for the future