Written by: Rita

In July, the US stock market underwent a rare momentum and position structure reversal, with deleveraging nearing its end. On July 29, Goldman Sachs' flow team released a report indicating that in August, there would likely be no trend-related market conditions for US stocks, with the overall market primarily characterized by range-bound fluctuations. Geopolitical issues, Federal Reserve decisions, and the earnings season will continue to disturb the market, with volatility remaining high. After deleveraging, the index has upward space, but it needs to first digest previous fluctuations before opening up large-scale positions.

Leverage remains high, technology stocks are the core of this round of adjustments

Goldman Sachs' prime brokerage data shows that the global total leverage ratio is at the 93rd percentile for a 5-year backtest and at the 65th percentile for a 1-year backtest. A few weeks of concentrated reductions have only temporarily alleviated leverage pressure, and the overall level remains relatively high, with the information technology sector bearing the largest sell pressure.

Last Friday, the global tech stock bulls' selling volume hit a peak since September 2024, marking one of the largest single-day sell-offs in nearly five years. On that day, global accounts sold net, with long selling and short covering at a ratio of 1.4 to 1. Deleveraging is occurring synchronously across global regions, but there are structural differences. The US and emerging Asia primarily see long reductions, while developed Asia and Europe mainly see short covering. All 11 sectors of the US stock market are simultaneously reducing risk positions, with the technology sector leading the decline.

US stock funds experienced a net inflow of $34 billion in July, the third highest inflow for July in nearly 20 years. Goldman Sachs anticipates that inflows will gradually slow down in August, with relevant signals already emerging. Current position pressure has mostly cleared, and the market has the conditions to pivot to a fundamentals-driven pricing. However, before an influx of new funds occurs, previous disturbances still need to be digested.

Stock buybacks are the core support in August, while seasonal fund outflows create pressure

Historically, August, along with May, is one of the months with the most severe outflows for stock funds and ETFs. Geopolitical risks, energy prices, and policy uncertainties collectively suppress buyer risk appetite. Ahead of the midterm elections, mutual funds tend to hold cash in anticipation of the election results. Similarly, overseas investors tend to moderately reduce their US stock holdings a month before the elections. The short-term incremental funds that could push the index higher are limited.

Stock buybacks are the most certain buying support in August. Currently, about 31% of S&P 500 constituents are in the buyback window, expected to rise to 53% by the end of the month, with over 90% of companies expected to end their earnings report quiet period by mid-August. Once the quiet period is lifted, buyback demand will be released significantly, providing sustained buying support for the market.

Traders hold a positive gamma position in the S&P 500, continuously increasing upside long exposure and reducing downside short exposure. This position structure suppresses the index's upward space and reinforces the range-bound fluctuation pattern. The gamma mechanism will amplify volatility during declines, but Goldman Sachs predicts that deep downside space is relatively limited.

Quantitative fund flows show asymmetric downside

The S&P 500 has fallen below the 7453 trigger point in the short term. Further declines in the index will trigger concentrated selling from CTA strategies. Goldman Sachs estimates that systematic strategies hold about $196.3 billion in long positions in US stocks, at the 48th percentile for three-year holding periods and at the 44th percentile for CTA holdings, indicating an overall neutral level.

In August, market liquidity is gradually tightening, with fund flows showing asymmetric downside characteristics. The enlarged scale of quantitative selling will exacerbate the impact on the market, driving short-term volatility up.

Goldman Sachs recommends inverse diversification and IWM put options

In response to the fluctuating environment in August, Goldman Sachs presents three structural trading directions.

Inverse diversification strategy: Short the top 50 S&P 500 constituents with a 2.5 times cap on volatility swaps while simultaneously going long on an S&P 500 index with the same structural volatility swap. The core logic is to go long on market correlation, profiting from the spread between the decreased individual stock volatility and increased index volatility.

IWM three-month put options: Historically, the Russell 2000 index performs weakly in the first two weeks of August, compounded by current monetary and geopolitical uncertainties, prolonging the weakness. This index has outperformed the market this year and has room for correction. IWM one-month 25 delta put options, with 1-year and 5-year percentiles at 48 and 46 respectively, are suitable as hedging tools in a rate hike scenario.

Short-term options for popular retail stocks: Since July, the trading activity in the retail sector has been below the average of the last five years, with daily trading volume accounting for over 3% lower than the average market cap ratio from 2021 to 2025. Goldman Sachs will track changes in this gap in August to uncover structural opportunities in the options market.

This round of deleveraging adjustment is nearing its end, but the aftershocks have not completely settled. The core support for the market in August comes from corporate buybacks, while suppressive factors include seasonal fund outflows, quantitative selling, and conservative institutional positions. The directional profit space for the index is limited; volatility arbitrage and structural hedging are more suitable trading paths for this month’s environment.

Disclaimer

This text is a整理与解读 of third-party brokerage research reports (Goldman Sachs, July 29, 2026) by潮向研究, combined with整理 of public market information. The ratings, target prices, earnings forecasts, and related judgments quoted in the text are solely the views of the analysts from that brokerage, represent only their institutional stance, do not represent the views of潮向研究, and do not constitute any investment advice.

The market carries risks; decisions should be independent. This text should not serve as a basis for buying or selling any securities.