Goldman Sachs: Systematic Funds Expected to Pivot Back to Buying U.S. Stocks

Goldman Sachs' trading desk stated that systematic investors are preparing to pivot back to buying stocks after slashing equity exposure to multi-year lows during the recent market sell-off.

Goldman Sachs said in a report to clients on Monday that these so-called “fast money” flows—including Commodity Trading Advisors (CTAs) and volatility-targeting strategies—sold approximately $240 billion in global equities during the market decline over the past month. However, this selling spree appears to be waning: traders expect the group could turn into net buyers of about $55 billion in the coming month, with roughly $20 billion of that flowing into U.S. equities.

Goldman Sachs anticipates that this shift will be gradual, with buying pressure amounting to only about $5 billion in the coming week, meaning the short-term impact may be limited.

“This mechanical buying is improving, but it is more of a mid-month tailwind rather than providing immediate support,” wrote Lee Coppersmith, a Managing Director at Goldman Sachs.

This shift could signal that the current U.S. equity market sell-off is nearing a turning point. Previously, pressured by the surge in oil prices triggered by the war involving Iran, investor sentiment had been weighed down, with the S&P 500 at one point falling about 9% from its all-time high. While the U.S. stock market has shown initial signs of a rebound recently, the trajectory of the conflict remains highly uncertain.

The strength of a short-term rebound will determine the aggressiveness with which these funds add to their positions. Goldman Sachs’ models show that if the S&P 500 rises by about 8% over the next month, global buying by systematic funds could expand to $220 billion, with more than half flowing to the U.S. market; conversely, a further decline of about 10% could trigger an additional sell-off of approximately $110 billion.

Key technical levels may guide the market's direction. Paul Leyzerovich of Goldman Sachs pointed out that the 6720 to 6740 range for the S&P 500 is a critical “re-entry zone,” where short-term and medium-term trend signals will turn positive, potentially accelerating inflows for trend-following strategies. The index is currently trading around the 6600 level.