Here's why Goldman Sachs is warning of more selling for stocks this week

By Barbara Kollmeyer

CTAs are ready to sell over the next week, no matter what stocks do

Goldman analysts say brace for more selling over the next month.

Investors may not have seen the end of last week's market volatility, with some big automated funds waiting in the wings to push the sell button if the S&P 500 sees another big drop.

That's according to Goldman Sachs analysts led by Gail Hafif, who described last week's volatile market action as "adult swim," meaning tough for less-experienced traders and investors.

A volatile week ended with investors piling into more boring names, pushing the Dow Jones Industrial Average DJIA past 50,000 for the first time, while momentum stocks such as software got battered on worries of fierce AI competition. U.S. stock futures (ES00) (YM00) (NQ00) pointed to more selling for tech and the S&P 500, with the Dow industrials set to hold onto that key level.

Hafif pointed to $6.25 billion in U.S. equities sold by commodity trading advisors, or CTAs, since the start of the year. Those are rules-based, systematic trading strategies that look for upward or downward price trends across markets, and at times are blamed for triggering selloffs. The analyst said global CTAs' investment in U.S. stocks is now 90% higher than in the past five years.

The Goldman team said the S&P 500 is less than 1.5% from a key medium-term threshold on the S&P 500 SPX of 6,707 - the index rallied on Friday, but finished the week down 0.1% to 6,932. "Should we breach that level and further down, we estimate up to $80 billion of supply will be unlocked over the next one month," they said. In other words a vast supply of stock selling would be unleashed.

Selling, it seems, will happen no matter what stock markets do in the near term, says Goldman. If markets are flat over the next week, they expect $15.37 billion in U.S. stocks being sold, which climbs to $32.5 billion if markets drop, and falls to $6.96 billion in a market that trends higher. Over the next month, a steady market will see $25.67 billion in flows out of U.S. stocks, but $9.34 billion in buying could be seen in an upmarket. A down market would see $79.78 billion in U.S. stocks dumped.

That's as they note S&P 500 and Nasdaq-100 NDX face a seasonally tough February - the second-weakest month of the year for the S&P 500, according to Citadel's head of equity and equity derivatives strategy Scott Rubner.

The Nasdaq is about 410 points from a medium-term threshold, but much of the stock supply held by those CTAs is concentrated in the S&P 500, said Hafif and the team.

The analyst also talked about other influential big automated strategies, risk parity and volatility control. Both of those strategies "have room to sell U.S. equities," said the analysts.

"As a reminder, these strategies react to changes in volatility on a longer horizon than their CTA counterparts, so their impact will be more visible on sustained and structural shifts in market volatility," they said.

As for retail investors, Hafif and the team said following a big buy-the-dip year for that cohort, they've "already demonstrated less willingness to 'buy all dips.'"

-Barbara Kollmeyer

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02-09-26 0611ET