Goldman Sachs: Long-Short Crowding Nears Five-Year Extremes, Quarter-End Pension Selling Pressure ~$30 Billion
Taylor Wilson
Goldman's John Flood warns that U.S. equity long and short crowding factors are both near five-year extremes, momentum exposure sits at the 98th percentile, and roughly $30 billion in quarter-end pension rebalancing selling hits next week — if the trend reverses, deleveraging will accelerate fast.
How rare is $30 billion of quarter-end selling?
Roughly $30 billion in U.S. equities will be sold next week as pensions rebalance — mechanically trimming stocks that have outgrown their target allocation.
This means → it is not a panic sell; it is passive, rules-driven trimming. But the size ranks at the 89th percentile of all buy/sell estimates over the past three years, and at the 95th percentile going back to January 2000.
In plain terms = pensions are not calling a top. Stocks simply rose past their target weight and must be cut back. The problem: this time, the cut is larger than almost any in recent history.
Crowding and momentum at extremes — what does that mean?
Both long-crowding and short-crowding factor exposures are near the most extreme levels in five years. Mid-term momentum factor exposure sits at the 98th percentile of its five-year lookback.
This means → capital is heavily concentrated in the same trend trades. Everyone is on the same side of the boat. If direction reverses, the stampede for the exit will be simultaneous — deleveraging pressure amplifies fast.
Flood's conclusion is blunt: prepare for sustained volatility.
Are hedge-fund positions extreme?
U.S. long-short gross leverage is 207.3%, at the 4th percentile over one year (near the lowest). Net leverage is 54.5%, at the 74th percentile.
Overall positioning is not extreme, but a structural split has emerged: IT-sector exposure has surged to a near-five-year high, while Mag 7 gross and net exposure have both fallen to one-year lows, driven by short selling since June.
This reflects a rotation: hedge funds are pulling back from the mega-caps and spreading into the broader tech sector. Flood sees the Mag 7 drawdown as a potential long entry opportunity.
Record equity supply — how did the market absorb it?
Alphabet completed a $40 billion equity raise — the largest primary-market deal in U.S. corporate history. Just six trading days later, SpaceX's $75 billion IPO broke that record. Combined supply of over $115 billion was absorbed smoothly in under two weeks.
Goldman's trading desk saw no meaningful liquidation selling from asset managers or sovereign wealth funds. Mutual funds hold roughly $170 billion in cash, in line with the historical average.
On June 18, total U.S. exchange volume hit 33 billion shares, an all-time single-day record. This means → liquidity is deep enough for now; retail buying is a key pillar, and Flood expects this tailwind to last through year-end.
Record semiconductor positioning — is sector broadening a good sign?
Semiconductors were the most net-bought sub-industry globally in 2025 and topped the list again in H1 2026. Net allocation has more than doubled year-to-date to an all-time high, led by Asian chipmakers.
Since June, U.S. single-stock flows have broadened — 8 of 11 sectors saw net buying, led by financials, industrials, and consumer discretionary. IT and energy were the heaviest net sellers.
In plain terms = money is no longer pouring into semiconductors alone; it is spreading across industries. Flood sees sustained broadening into H2 as a positive signal — it means the market is no longer standing on one leg.
What is the biggest risk for the second half?
Q1 S&P 500 EPS grew 18% year-over-year (excluding one-offs); median stock earnings growth hit 14%, one of the strongest quarters in a decade. AI-infrastructure stocks are expected to contribute roughly half of the S&P 500's full-year earnings growth.
But new Fed Chair Warsh's first FOMC meeting was more hawkish than expected — of 18 participants who submitted rate projections, half expect one or more hikes in the remainder of 2026. The median core-PCE inflation forecast for Q4 2027 rose to 2.5%.
Goldman's economists maintain their base case: no hike remains the most likely outcome, because roughly half of those projecting hikes are non-voting regional Fed presidents. Goldman also cut its U.S. recession probability from 25% to 15% and raised its H2 annualized GDP growth forecast to 2%.
This means → fundamentals are solid for now, but whether extreme positioning can unwind in an orderly way atop those fundamentals is the defining test for markets in the second half.
Content is for reference only, not financial advice.