Despite a brief lift in risk sentiment following signals of de-escalation in the Middle East, recent trading desk alerts from Goldman Sachs and JPMorgan indicate that deeper structural issues in the market remain unresolved. The core problem lies in persistent systemic selling pressure and insufficient unwinding of positions, which are pushing the market toward a new phase of heightened volatility.
Goldman Sachs' trading desk warns in its latest report that recent sharp market swings have forced Commodity Trading Advisor (CTA) strategy funds to trigger risk-control mechanisms. Over the coming week to month, regardless of market direction, CTAs are expected to become net sellers of equities. Goldman specifically highlighted that the scale of selling in the upcoming week could reach record levels in its data history, suggesting algorithmic trading will be a major source of sustained market pressure.
Meanwhile, JPMorgan's positioning intelligence team noted that although markets have experienced significant turbulence recently, there has not been a full "washout" deleveraging event—where investors sell indiscriminately in panic, driving positions to extreme underweight levels. Data shows that overall investor positioning has only retreated to neutral, far from historical clearing levels. This structural weakness implies the market lacks sufficient buying power to absorb potential future selling pressure. As a result, JPMorgan views the recent rebound as driven more by short covering and sentiment repair rather than the start of a new allocation cycle.
Analysts suggest that with passive systematic traders such as CTAs turning into pure sellers, and active managers yet to complete their positioning adjustments, the market remains vulnerable to a second downturn after any short-term stabilization.
Goldman Sachs: CTAs to Sell Under All Scenarios Goldman's trading desk models indicate multiple warning signs, pointing to a triple threat of systemic selling pressure, ineffective hedging mechanisms, and drying liquidity.
First, CTA selling is set to hit record levels, with key technical thresholds at risk. Goldman's conditional CTA flow model shows that systematic funds will continue to be net sellers of equities over the next week to month, regardless of market direction. The bank emphasized that the estimated selling volume ranks among the largest on record. A close below the medium-term pivot support level for the S&P 500 could trigger a new and more aggressive wave of systematic selling.
Second, market makers are exacerbating volatility due to negative Gamma exposure. More concerning, market makers' Gamma exposure has fallen to its most negative level this year. This means their hedging activities may amplify price moves rather than stabilize them—whether the market rises or falls. A negative Gamma environment is expected to persist, significantly raising the probability of entering a high-volatility regime.
Third, liquidity is approaching historic lows, and market confidence is fragile. Liquidity conditions are also sounding alarms. Depth in E-mini futures order books has dropped to levels last seen around the "Liberation Day" sell-off. At the same time, Goldman's volatility fear index is near historical extremes, and risk appetite indicators have retreated to Liberation Day levels, suggesting a widespread lack of directional conviction among market participants.
JPMorgan: Limited Room for Rebound Amid Incomplete Positioning Unwind JPMorgan's positioning team echoes many of these concerns.
On one hand, a technical rebound is possible but unlikely to resolve structural issues. The team noted that positioning declines over the past four weeks have triggered an "attractive" signal in their tactical positioning model, suggesting a potential rebound over the next two to four weeks. However, this short-term signal masks deeper worries—the market has not seen extreme risk-off behavior, with overall positioning only neutral, consistent with the market's sideways movement since the Iran tensions began.
On the other hand, fund flows reveal underlying fragility. Detailed data further undermines the rebound thesis: hedge funds' buying activity early in the week turned to selling from Wednesday to Thursday. Retail flows at the single-stock level also shifted from net buying on Monday to neutral. At the same time, deleveraging has been limited (below two standard deviations), U.S. hedge fund turnover remains normal, and ETF hedging demand has not shown a sustained increase. JPMorgan concluded that overall "stress" signals remain limited, indicating a lack of rebound momentum following a true market clearing.
Notably, European markets show clear divergence. JPMorgan data indicates that European hedge fund turnover surged to +2.4 standard deviations over the past week (compared to +1.7 in Asia-Pacific and only +0.6 in North America). The bank noted that such significant regional divergence last occurred after the March 2023 U.S. regional banking crisis and early in the Russia-Ukraine conflict in 2022. Meanwhile, net selling in Europe has been the strongest (-2 standard deviations), and the premium of Europe's V2X volatility index over the VIX is near its 95th percentile over the past five years.
Against this backdrop, JPMorgan's market intelligence team has adopted a tactically bearish stance, forecasting that the S&P 500 could fall by up to 10% from recent highs, with a target low around 6270. Key risk factors cited include ongoing uncertainty in the Middle East, incomplete positioning unwinds, and systemic selling pressure that has yet to fully materialize.
Integrating views from Goldman Sachs and JPMorgan, the core conflict facing the market is the coexistence of potential geopolitical de-escalation expectations with structural pressures from technicals and positioning. With CTAs turning net short, Gamma conditions remaining negative, and liquidity depth insufficient, price movements in either direction are likely to be amplified. Investors should remain highly alert to the potential for elevated near-term volatility.