Goldman Sachs Warns of a Short-term Pullback for S&P 500

As global stock markets continue to soar driven by the AI narrative, Goldman Sachs partner and head of Americas Equities Execution Services, John Flood, issued a rare short-term warning in a research report released on Sunday: market positions are becoming increasingly crowded, and multiple selling pressures are quietly converging, investors should be mentally prepared for a certain degree of pullback in the near term.

Flood also clearly stated that the S&P 500 index will still be "significantly higher" by the end of the year, and any pullback should be seen as a significant buying opportunity on the dip, rather than a signal of a bearish trend.

This judgment represents the mainstream position of Goldman Sachs' strategist team: the bull market is far from over, but now is not the time to chase highs.

Triple selling pressure, may resonate in the short term

The Goldman Sachs strategy team has identified three overlapping selling forces, once resonant, may trigger a technical retreat.

The first force: the role transformation of CTA "fast money"

Over the past month, systematic strategy funds CTA, known in the market as "fast money," have accumulated the purchase of about $53 billion in equity-like assets, and currently hold about $32 billion in long positions on the S&P 500. However, according to the model calculation of Goldman Sachs' trading desk, this group of funds has basically completed their building positions – they are about to shift quietly from the biggest buyers to potential sellers. Once the market is flat, CTA may start to reduce positions; if the market declines, selling will further intensify.

The second force: massive pension fund rebalancing at the end of the month

As the end of the month approaches, the routine rebalancing operations of large-scale pension funds are expected to bring more than $25 billion in U.S. stock selling pressure. Goldman Sachs estimates that this scale is expected to rank among the top 15 largest monthly selling estimates since the institution's records began in 2000. Flood and other strategists even pointed out that, excluding quarterly factors, this will be the largest single-month selling estimate in history.

The third force: active deleveraging of hedge funds

With the recent sharp rebound in U.S. stocks, hedge fund managers did not choose to continue to increase their positions, but took the opportunity to actively cover their short positions and reduce exposure. Data from Goldman Sachs' prime brokerage business shows that the overall total trading activity decreased for the first time in 13 weeks last week, and the total scale of hedge funds' long and short positions in stocks has been reduced to the largest decline since September last year. This means that short-term leveraged funds have little room to continue to act as a buying force.

Internally in the market, hidden concerns have emerged

Apart from the pressure of funds, the internal structure of the market itself is also sending out warnings.

Although the S&P 500 index and the NASDAQ 100 index are still expected to achieve the strongest monthly performance in many years, the rapid increase has pushed key indices into the overbought area, and Goldman Sachs' U.S. equity sentiment indicator has also risen to a level indicating a crowded position. Historical data shows that such readings often correspond to returns being under pressure in the coming weeks.

At the same time, market breadth is deteriorating noticeably. The Philadelphia Semiconductor Index, known as the "semiconductor barometer," has recorded a record 18 consecutive increases, but the gap between the S&P 500 index's 52-week high and the median component stock's 52-week high has expanded to one of the widest levels since 2020—this round of increases is increasingly concentrated in a few AI computing leaders such as NVIDIA, AMD, Broadcom, and Micron, causing a significant decrease in the overall fault tolerance of the market.

The earnings season is a "verification moment," not a "victory party"

Just as this warning was issued, the quarterly financial reports of Google, Microsoft, Amazon, Meta, and Apple, the five major technology giants, are being disclosed one after another. In the view of Goldman Sachs, this is both the time window for the most concentrated risk and the key moment to test the color of AI investment narratives.

Morgan Stanley and Citigroup's logic is highly consistent with this: the first signal to judge AI investment returns is whether the business revenue directly related to AI is accelerating, not just the scale of capital expenditure.

The market needs these giants to give clear answers on three things:

• Continued strong willingness for AI capital expenditure – proving that the investment in AI infrastructure is unw