Goldman Sachs Warns That Bear Market Rallies Are the Norm, Uncertainty Dominates Market Direction
Goldman Sachs stated that the biggest driver of the current market remains uncertainty, as investors have yet to become genuinely bullish or bearish on the market. This article originates from the Wall Street Journal, compiled, translated, and written by Foresight News.
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Goldman Sachs Warns That Bear Market Rallies Are the Norm, Uncertainty Dominates Market Direction
Goldman Sachs has warned that bear market rallies are the norm, with uncertainty driving market movements.
Over the past two weeks, U.S. stocks have rebounded significantly, fully recovering all losses since April 2. Goldman Sachs analyst Peter Oppenheimer recently stated in his research report that the recent sharp rebound in the stock market may simply be a typical bear market rally, leaving stock investors in a dilemma in the current market environment.
Oppenheimer believes that the largest driving force in the current market remains uncertainty, with investors not genuinely bullish or bearish:
“The asymmetry of stock investment is poor. Sharp rebounds in bear markets are the norm, not the exception.”
“If U.S. tariff policies are quickly reversed with little lasting economic damage, it does indicate limited downside risk. However, given the current valuation levels, the upside potential is also limited.”
This market environment makes investing extremely difficult, with decision-making clouded by ambiguous headlines. Market participants must choose between chasing diminishing rebounds and risking late exits or completely missing another round of squeezing rallies.
Tricky Market Environment Forces Investors to “Buy with a Pinch of Salt”
Many investors were forced to sell risk assets when tariff prospects were unclear in early April, but are now buying back during the rebound, with few investors holding sufficient positions to fully benefit from this performance.
Nomura Securities cross-asset strategist Charlie McElligott describes the current situation as “an unpleasant equity trading scenario that no one wants.”
McElligott confirmed in a report that the phenomenon of “buying back positions while holding one’s nose” is occurring in equity index options, “even though most investors dislike the macro growth outlook going forward.”
Historical Data Suggests Rebound May Be Nearing Its Limits
Data indicates that this rebound, one of the most severe monthly rebounds historically in mid-April, may have exhausted its upward potential.
According to media statistics, since 1980, global stock markets have experienced several bear market rallies, averaging 44 days in duration with a gain of 14%. Although this year’s global stock market decline cannot yet be officially termed a bear market, prices have risen 18% from the intraday low on April 7.
Academy Securities macro strategist Peter Tchir stated:
“Interest rates and risk assets will continue to be driven by news headlines. Policies and trades will take turns pushing the market.”
Investor Sentiment and Positioning Becoming Crowded
Goldman Sachs managing director John Marshall wrote in another report that the financing spread—measuring demand for long positions through stock derivatives (such as swaps, options, and futures)—has decoupled from the recent stock market rally. “This indicates that macro investors have reduced their equity positions as the market strengthened recently.”
Marshall anticipates that this week will be particularly turbulent, as the U.S. Federal Reserve meeting will take place, with “comments regarding June/July being especially important.”
Systematic investors’ buying is steadily increasing, providing support for the rebound. Goldman Sachs traders noted that systematic macro investors’ buying surged to $51 billion last week, with expectations to purchase $57 billion this week.
“The total buying scale is not negligible, but it is not larger, because if signals flip quickly, it will reduce the immediacy of capital flows, and volatility is higher than before.”
Other buying flows that supported the rebound appear to be more tense. JPMorgan’s tactical positioning monitor is currently in a neutral state, with weekly changes indicating “moderate increases in positioning.”
Hedge fund leverage has rebounded on a month-on-month basis, currently sitting at the 96th percentile historically. Meanwhile, retail investors continue to increase their risk positions.
John Schlegel, head of JPMorgan’s positioning intelligence team, stated:
“Retail investors have seen the strongest buying month in our data since 2017, as they are simultaneously purchasing individual stocks and ETFs.”
