Goldman Sachs: Deleveraging Cycle Nearing End but Risks Remain, Recommends Active Buying of Protection

BlockBeats News, July 30th, the Goldman Sachs trading team stated that the recent violent momentum retracement and position unwinding in the US stock market may have entered the late stage, but substantial derisking has not yet been completed. Global total leverage is still in the 93rd percentile of the past 5 years, and events such as geopolitics, Federal Reserve policy, and earnings season could still maintain high market volatility.

Goldman Sachs predicts that the upward potential of the US stock market in August will be affected by seasonal outflows from funds, insufficient institutional buying interest, and dealer Gamma positioning suppression, causing the market to remain in a short-term range-bound state. If the market continues to decline, systematic strategies such as CTA may increase selling pressure; the selling volume in a one-week scenario of decline is expected to reach $24.9 billion, much higher than the buying volume of about $2.3 billion in an upward scenario.

Corporate buybacks will be the most stable buying support in the short term. Currently, about 31% of S&P 500 component stocks are in an open buyback window, and this proportion is expected to exceed 90% by mid-August. However, as individual stock correlations with the index rise, the extreme risk of simultaneous decline in the market is increasing.

Goldman Sachs advises investors to actively acquire protective positions, including taking long positions in market correlation, buying Russell 2000 ETF three-month put options, and allocating short-term option protection to retail popular stocks. The current cost of protection is still reasonable and suitable for hedging against further market downturn risks.