Key Points:
- Algorithmic funds plan to sell billions in stocks this week.
- A drop below S&P 6,707 could trigger an $80 billion sell-off.
- Market liquidity is dangerously low, causing wilder price swings.
- Anthropic’s new AI tool sparked panic in the software and finance sectors.
US stocks might face a rough ride this week. Despite a strong rally on Friday, Goldman Sachs warns that computer-driven funds are preparing to dump billions of dollars in shares. The bank’s trading desk reports that these algorithmic traders, known as CTAs, have hit a “sell” signal.
Even if the market stays flat this week, these funds are expected to sell about $15.4 billion worth of stocks. If the S&P 500 rises, they will still sell around $8.7 billion. However, the real danger lies to the downside. If the index falls below the 6,707 mark, it could trigger a massive fire sale of up to $80 billion over the next month.
Investors are already on edge. Last week saw a sharp drop in software and financial stocks after the AI company Anthropic released a powerful new automation tool. This sparked fears that AI might disrupt major industries faster than expected. Goldman’s “Panic Index” recently hit 9.22, a number that suggests the market is nearing “max fear.”
Making matters worse, the market is currently running on low liquidity. The amount of money available to buy and sell easily has dropped significantly compared to the yearly average. Goldman traders Gail Hafif and Lee Coppersmith warned clients to “buckle up,” noting that this lack of cash makes price swings much more violent. Dealers who manage options are also in a position where they must sell when the market drops, which forces prices down even faster.
To top it off, regular retail investors seem tired. For the last year, every day, traders consistently bought stocks whenever prices dipped. That trend is breaking. Data shows retail traders sold a net $690 million last week. Crypto-linked stocks took the hardest hit. With February historically being a weak month for returns, the market lacks the support it usually gets from enthusiastic individual buyers.
