Goldman Sachs: Hedge fund positions may create conditions for a sharp rebound in US stocks

Goldman Sachs' trading division stated that hedge fund positioning in US stocks has created conditions for a significant market rebound after recent volatility. Speculative investors are largely maintaining long positions at the individual stock level, while hedging through products such as shorting ETFs and stock index futures. Data from the bank's main brokerage team shows that short positions in these products have now risen to their highest level since September 2022. This structure reflects the market's response to uncertainty stemming from the Iran war, credit risk, and AI-related concerns. John Flood, Head of Execution Services for Equities in the Americas at Goldman Sachs and Partner, said that this structure could also drive a significant market rally if positive news emerges and prompts investors to unhedge. "If there are headlines announcing the end of the conflict, there could be a rapid upward movement at the index level. It could rise 2% to 3% in a short period, with most of that coming from short covering in macro products," Flood said. "Currently, the right-tail risk is more extreme than the left-tail risk," meaning the market is more likely to experience significant upward volatility. "Given the very high overall exposure and the large amount of short selling in macro products, any positive news could trigger aggressive short covering." (Jinshi)