Goldman Sachs: Market Deleveraging Is Near Its End, But Risks Persist

Huoxing Finance reports that on July 30, Goldman Sachs’ trading team stated that U.S. equities have recently experienced sharp momentum reversals and position unwinding, suggesting the deleveraging process may be entering its later stages, though meaningful risk reduction remains incomplete. Global aggregate leverage remains at the 93rd percentile over the past five years, and events such as geopolitical tensions, Federal Reserve policy, and earnings season could continue to sustain high market volatility. Goldman Sachs expects that in August, upward potential in U.S. equities will be constrained by seasonal fund outflows, weak institutional buying appetite, and dealers’ positive gamma positions. The market may remain range-bound in the short term. If markets continue to decline, systematic strategies such as CTA may increase selling pressure; estimated selling volume under a downside scenario over the coming week is projected at $24.9 billion, far exceeding the approximately $2.3 billion in buying volume under an upside scenario. Corporate buybacks will remain the most stable source of near-term buying support. Currently, about 31% of S&P 500 constituents are in their open repurchase windows, a figure expected to exceed 90% by mid-August. However, as correlations between individual stocks and indices rise, the risk of synchronized sharp declines is increasing. Goldman Sachs advises investors to proactively purchase protective positions, including going long market correlation, buying three-month put options on the Russell 2000 ETF, and implementing short-term option hedges for retail-favorite stocks. Current protection costs remain reasonable and are well-suited for hedging against further market declines.