"The Four Witches Day" is coming! Will the US stock market soon see record volatility?

Goldman Sachs' latest research report shows that the current US stock market is at a critical point of "collapse" and "squeeze", which also means that since the end of February, the global stock market volatility triggered by the US/Israel airstrikes on Iran could become more severe, and there is a possibility that the US stock market may experience record-breaking volatility during this week's "quadruple witching day". With the unresolved situation in the Middle East, high oil prices, and the concentration of derivatives expiring this week, the global stock market is likely to experience further short-term volatility. If there is no substantial turnaround in the Middle East geopolitical situation in a very short time, the US stock market may experience record volatility on quadruple witching day, and global stock market volatility will intensify along with the US stock market. Quadruple witching day occurs on the third Friday of March, June, September, and December, known for causing spikes in trading volume and sudden price fluctuations. Typically, stock trading volume tends to surge on these days, with the largest trading volume usually occurring in the final hour, as traders may make significant adjustments to their portfolios. However, since the discontinuation of single stock futures trading in the US market in 2020, the classic term "quadruple witching day" is purely symbolic, and "triple witching day" (when stock index futures contracts, index options, and individual stock options expire simultaneously) is more reflective of actual trading situations. The statement "high volatility is the common enemy of all professional traders" is particularly applicable in the current environment. The current high volatility environment is likely to persist in the short term, posing a real challenge to professional funds. It not only makes it more difficult to determine direction, but also simultaneously raises hedging costs, shortens tolerance for positions, squeezes leverage efficiency, and may cause correct fundamental judgments to lose to timing errors. In other words, traders are not just facing a single trend, but a combination of oil price jumps, frequent market reversals, system fund rebalancing, private credit, and AI panic, creating multiple noises to contend with. The critical zone where "collapse risk" and "squeeze risk" coexist Hedge funds and institutional investors currently maintain extreme long positions in certain stocks while substantially shorting ETFs and stock index futures, leading to a high level of short exposure in the US stock market that has not been seen since September 2022. This abnormal position structure suggests that if the geopolitical situation continues to deteriorate, the market is more likely to tilt downwards, but a major positive catalyst could easily trigger an "extreme rebound". The Iran war and soaring oil prices are causing institutional funds to withdraw from US stock risk assets in a way that is almost "historically extreme", pushing the market to a highly fragile critical zone. According to Goldman Sachs data, global asset management institutions sold a net $36.2 billion worth of S&P 500 futures during the week of March 3-10, marking the largest weekly reduction in over a decade; at the same time, short positions in US-listed ETFs also saw historic increases, with the overall short position in macro products reaching a nearly three-year high. These movements indicate that the current repositioning is not just a defensive tweak but a systematic derisking operation involving futures liquidation and ETF shorting, reflecting a high level of vigilance among institutions towards geopolitical impacts, oil price inflation, and stock market vulnerability. The market is currently at a critical point where "collapse risk" and "squeeze risk" coexist: on one hand, if the Iranian situation does not ease in the next two weeks, the extreme positions and deteriorating sentiment could push stock indices further down; on the other hand, since institutional net long positions have not been completely cleared, and large short positions have accumulated, any signal of relief could quickly trigger a strong short-covering rally. In other words, the most dangerous aspect of the current US stock market is not that the direction is determined, but that the position structure is extreme; what will ultimately determine the future trend is whether there can be a substantial turnaround in the Middle East situation within a short time. The global stock market's "high volatility chapter" is not over As diplomatic progress remains very limited, the uncertainty surrounding the outcome of this conflict continues to weigh heavily on global financial markets. Before the stock market returns to relative calm, it may undergo several weeks of intense volatility and turbulence. Some options traders are betting that the most difficult period of severe volatility in the stock market will last for at least another week or even a month, until after the formal meeting of leaders of the world's two largest economies, and then transition relatively smoothly back to normal trading patterns. Unless there is a more evident and verifiable cooling off in the Middle East situation, a significant decline in oil prices, and systematic selling pressure is released, and macro-level risks are actively digested, global stock markets are likely to remain in a high volatility price discovery phase in the short term, rather than a stable trend market. Veteran traders on Wall Street, as well as some institutional investors, are betting that the high volatility in the global stock market will last for at least the short term (the next month) - meaning that the more reasonable benchmark scenario for the stock market is not a "one-sided crash", but a pattern of repeated large fluctuations between high oil prices under constraints and volatility, with this intense volatility potentially continuing even before the market's expected first ceasefire in the Middle East (by June 30). With the ongoing military conflict between the US/Israel and Iran, the global financial markets remain tumultuous, investors feel extremely uncertain about when a potential ceasefire might occur, and the market's "real money betting amounts" on the timeframe for a ceasefire have significantly shifted - from the end of March to the end of June or even the end of December. The continued military-level attacks near the Strait of Hormuz - one of the world's most critical shipping lanes - undoubtedly exacerbate concerns over global trade disruptions, inflation and stagflation pressures rising, and increasing volatility in global stock markets. Data from the prediction platform Polymarket shows that traders seem to collectively believe that an official ceasefire in this geopolitical conflict is more likely to occur in June of this year or even in the second half of the year, rather than as optimistically predicted by some Wall Street analysts in the near term. Currently, according to Polymarket's probability compilation data, the likelihood of a ceasefire before June 30 is 59%, and the likelihood of a ceasefire before December 31 is as high as 77%; with the probability of reaching a ceasefire agreement by the end of March being significantly lower. The market is not currently in a stage of "waiting for repair after panic bottoming out", but in a phase of prolonged geopolitical conflict, oil prices climbing back over $100, and continued selling pressure eroding asset prices. Rich Privorotsky, head of trading at Goldman Sachs, believes that the real issue at present is not whether sentiment has turned bearish, but that fundamentals continue to deteriorate - partial blockage of the Strait of Hormuz has driven up energy costs, US bond yields are rising, the stock market is slowly bleeding, and emerging markets are lacking in rebound strength, indicating that the market currently lacks a clear exit to rebuild risk appetite. In other words, while technical and positional factors may support a short-term rebound, the macro trend remains bearish.