Goldman projects $40 billion stock selling scenario over the next week

The S&P 500 index’s fall below a closely watched level gave hedge funds that trade stocks on trends the green light to potentially sell almost $40 billion in equities in the coming week, Goldman Sachs said in a note to clients seen by Reuters.

The S&P 500 declined in value past a threshold of 6,725 on Wednesday. It closed the day at 6,642.

Trend-following hedge funds were watching that threshold as a signal to either sell out of their positions, or to add short bets that stocks would fall further, the note sent to clients late on Wednesday said.

After prices fell below that figure, Goldman’s calculations suggest that over the next week, $39 billion of global equities might be sold.

Should stock prices extend falls, the bank estimates that systematic trend hedge funds could sell as much as around $65 billion.

Trend-following hedge funds aim to capitalise on signals on the start of market trends - whether up or down. These signals can be based on the volume of traders in a market, the price or how fast an asset price changes during the trading day.

Before stocks began to sell off, these hedge funds were long around $150 billion worth of global equities, the Goldman note said.

The last time prices fell through one of these closely watched levels was in October, said Goldman, and prior to that, on April 2 when U.S. President Donald Trump announced a raft of tariff proposals.

As has often been the case over the past two years, Nvidia’s forecast-beating results have helped calm a tech sector nervous about bubble-like AI valuations. Meanwhile, hopes of another U.S. interest rate cut this year have all but disappeared.

Demand for Nvidia’s chips was never the root of the AI bubble worries, which are mostly focussed on whether the gigantic AI infrastructure spend will eventually pay off in industry-wide returns now that debt is increasingly being used to fund it. Nvidia’s business has become increasingly concentrated in its fiscal third quarter, with four customers accounting for 61% of sales.

But shares in the world’s most valuable company jumped more than 5% overnight after the results, with Nvidia’s slowing but still-impressive revenue projections showing a re-acceleration in a year’s time. And, needless to say, the AI bellwether doesn’t see stock values as being in a bubble.

The overnight stock move should add more than $200 billion in market cap at the open later on Thursday, and that’s lifted S&P 500 and Nasdaq futures more than 1% out of hours. The S&P 500 had broken a four-day losing streak before the Nvidia release.

Tech-heavy stock indexes in Tokyo, Seoul and Taipei surged 2-3% earlier today. And Wall Street’s VIX “fear index” of implied volatility has fallen back about three points to 21.

Digital token bitcoin remained under a cloud, however, and struggled to regain the $92,000 level overnight.

The other big market development on Wednesday was the gradual disappearance of December Fed easing bets, with the Bureau of Labor Statistics saying it won’t now publish an October employment report and the November release won’t be published until December 16 - six days after the Fed meeting.

Fed futures now see little more than a one-in-five chance of a cut next month - from a four-in-five chance earlier this month. September’s long-awaited payrolls report is due out later today and expected to show a 50,000 jobs gain and unchanged unemployment rate of 4.3% - although it is likely to be too far out of date to materially affect Fed thinking.

And as economic data releases return following a hiatus due to the 43-day government shutdown, the Atlanta Fed’s “GDPNow” model shows overall U.S. growth tracking an annualized rate of 4.2%.