Goldman Sachs’ Momentum Models Indicate Further Downside for Stocks

Goldman Sachs analysts have indicated that there may be further declines in global equity markets, based on their momentum models.

A recent note from Goldman revealed that “more than 70% of our modeled trend signals are more negative across markets and tenor horizons,” marking a notable increase from 38% just a week prior.

While the equity markets have experienced some stabilization and a rebound, the overarching trend remains bearish. Analysts estimate that Commodity Trading Advisors (CTAs) and trend-following strategies have significantly scaled back their long positions in global equities, reducing their investments from approximately $150 billion in mid-July to around $90 billion, with more cuts anticipated.

According to the note, “short trend is now more negative in 100% of the markets we track, and medium trend is more negative in 80% or more,” which signals widespread selling pressure. Over the past month, CTAs have offloaded about $41 billion in global equities, with $32 billion of that occurring in just the last week.

Goldman Sachs highlighted that simulated selling has been extensive across almost all modeled products, with the Standard & Poor’s 500 Index being among the most heavily sold. The SPX is particularly important due to its prominence in investment portfolios, while the Topix index has seen all three of its short, medium, and long-term trend signals turn negative.

The investment bank also anticipates further selling from risk-parity and volatility control strategies, estimating an additional $30 billion in equity sales within the upcoming week.

In conclusion, while these systematic strategies are influencing the current market trend, total institutional exposure in U.S. index futures remains historically elevated, suggesting there could be more selling pressure if the negative trend continues.