The U.S. stock market is experiencing an unusual period of "false prosperity." On March 8, the sales and trading team at Goldman Sachs released a report stating that although geopolitical headlines are frequent and the S&P 500's volatility appears relatively stable, the internal pricing logic of the market is sending clear warning signals. Lee Coppersmith, a liquidity analysis expert at Goldman Sachs, stated bluntly: "The market stress indicated by fear signals is far more severe than what the headlines suggest."
Historically, since 1950, escalating geopolitical risks have typically triggered a weekly decline of about 4% in the S&P 500, with markets usually recovering to pre-turbulence levels within a month. The recent decline in U.S. stock indices (-3.4%) remains within a controllable range, but the problem lies in the "internal pressure." Goldman Sachs' "US Vol Panic Index" closed at 9.72 on Friday. This indicates that while the broader market appears not to have crashed, the market's tolerance for bad news has plummeted to an extreme low. Coppersmith warned: "Beneath the relatively calm surface of the indices, market trading exhibits extremely high fragility. Once bad news emerges, risk exposure will rapidly expand."
Investors' current defensive strategies reflect a contradictory mindset: they are buying insurance but do not intend to retreat. Data from Goldman Sachs shows that U.S. stocks have experienced net selling for three consecutive weeks, primarily driven by hedging demand. The most significant sign is that short positions in U.S. stock short ETFs surged by 8.3% in a single week. This is the largest weekly increase since the "tariff relief day" and the second-largest increment in the past five years. Investors have substantially increased short positions in corporate bond, energy, small-cap, and large-cap ETFs. However, this hedging behavior has not translated into a substantive adjustment of risk exposure. Goldman Sachs data shows that the total market leverage ratio only slightly decreased to 307.4%, remaining at an extremely high historical percentile of 99% over the past five years; the net leverage ratio dropped by just one point to 79.2%. This implies that investors are merely adding a protective layer around their existing positions, rather than genuinely "de-risking."
The current market leadership is extremely concentrated, which in itself constitutes the greatest systemic risk. Data from Goldman Sachs Prime Brokerage shows that the net exposure to the "medium-to-long-term momentum factor" has risen to 55%-60% of fund equity holdings, reaching a multi-year high. This means all the market's money is bet on the same style of winners. Such crowding acts as a propellant during rallies but becomes a disaster when leadership cracks. Indeed, this turbulence has already begun to manifest in hedge fund performance. From February 27 to March 5, Goldman Sachs' estimated Fundamental Long/Short portfolio fell by 3.22%, marking its worst performance since June 2022. The market's "violent rotation" also confirms this: previously leading sectors year-to-date, such as copper mining, memory chips, and metals, were heavily sold off, while previously neglected "high-risk software" and "high-risk AI" sectors rebounded. This is a typical factor-based market shakeout.
Ultimately, the profit engine of U.S. stocks remains highly dependent on a few tech giants. In 2025, seven AI-related stocks—Amazon, Broadcom, Google, Meta, Microsoft, Micron, and NVIDIA—are projected to contribute about half of the S&P 500's earnings per share (EPS) growth. This trend is expected to continue into 2026, with NVIDIA alone forecasted to contribute 24% of the total earnings growth.
As analyzed by Goldman Sachs, the current macro turbulence may dissipate quickly, similar to other historical geopolitical conflicts. However, the core issue is that due to high investor leverage, extremely crowded positioning, and an over-reliance on a single sector for profit growth, this "fragile balance" could be broken at any time. Coppersmith concluded: "Until positioning becomes more dispersed or leadership re-accelerates, market volatility will be much greater than what the major indices themselves suggest."
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