Goldman Sachs: Hedge fund positions may create conditions for a sharp rebound in US stocks

The trading department of Goldman Sachs Group stated that the position structure of hedge funds in the US stock market has created conditions for a significant rebound after recent volatility. Speculative investors generally maintain long positions at the individual stock level, while establishing hedges through shorting ETFs and stock index futures. Data from the bank's main brokerage team shows that short positions of such products have currently risen to the highest level since September 2022. This structure reflects the market's response to the uncertainties arising from the Iran war, credit risks, and concerns related to AI. John Flood, managing director and partner of Goldman Sachs Americas Equity Execution Services, stated that if positive news prompts investors to unwind their hedges, this structure could also drive significant market upswings. "If there is a headline announcing the end of conflict, there could be a rapid upside at the index level. It could rise by 2% to 3% in a short period of time, with most coming from covering of macro product shorts." Flood said, "the current right tail risk is more extreme than the left tail risk," meaning there is a greater likelihood of large market volatility to the upside. "With the total exposure being very high and a significant amount of shorts in macro products, any positive news could trigger aggressive short covering."