Tuesday is the last trading day of 2024, with the S&amp;P 500 index closing the year after four consecutive trading days of decline, marking the longest year-end drop since 1966, although it still performed strongly throughout the year. Goldman Sachs' top trader Brian Garrett stated in his last report for 2024 that the market performance in the last two weeks of the year deviated significantly from his original expectations.Garrett pointed out that on December 16, the market's expectation for the S&amp;P 500 index's volatility over the next two weeks was 1.25%. This 1.25% was derived from the pricing of a straddle option. A straddle refers to simultaneously buying or selling call options and put options for the same underlying asset, with the same expiration date and strike price, which can reflect the market's expectations for future volatility.However, since December 16, the actual volatility has shown that the average intraday trading range of the S&amp;P 500 index, which is the difference between the daily high and low, was 1.35%. This indicates that actual market volatility exceeded the expectations reflected in the option pricing.Garrett warned that short positions have recently begun to increase, with technical factors dominating the U.S. stock market, market liquidity under pressure, and risk management awareness on the rise (increasing short positions and decreasing net positions). Garrett noted that while the U.S. stock market was extremely calm during the first year of Trump's first term, there are signs that the first year of his second term will be different and not as tranquil.Therefore, Goldman Sachs' trading department has the following recommendations:<blockquote>Focus on equal-weighted indices rather than market-cap weighted indices.Prefer mid-cap stocks over large-cap stocks.Allocate some funds to gold and use 6-month options for market downside protection.Pay attention to the volatility index VVIX, with caution above 110. VVIX measures the volatility of &#34;VIX options.&#34;Look for merger and acquisition targets, especially outside the United States, considering the strengthening dollar.</blockquote><h2>Goldman Sachs' report also listed several important points</h2>The 2024 SPX options market has exhibited a new volatility pattern, which can be termed &#34;partitioning.&#34; The main characteristic of this phenomenon is that when risk events occur, market volatility spikes quickly but also falls back more rapidly. Such a rapid rise and fall has not been seen in the past three years. This is likely due to structural index Gamma supply. If prolonged weakness occurs in the future, the prices of these short-term options may drop too quickly, providing investors with better buying opportunities on dips.Regarding the structural supply of Gamma, Garrett used the last few days of December as an example to demonstrate the importance of Gamma. The correlation between volatility and Gamma, as shown in the chart below, only became a point of interest about two years ago and has now become a daily focus.<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/f7cdc58a-c3ad-4e94-a73f-8e8aacdf1039.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/f7cdc58a-c3ad-4e94-a73f-8e8aacdf1039.png"/>The breadth of the market significantly declined in December. On about 70% of trading days in December, the number of declining stocks exceeded the number of advancing stocks; however, the S&amp;P 500 index remained very strong. Another way to analyze market breadth is to compare the returns of the equal-weighted SPX and the market-cap-weighted SPX indices, which showed a difference of up to 6% in 2024.Although there was a retail investor frenzy in 2024, the current crazy buying of mega-cap tech stocks has significantly cooled down, decreasing by about 75% from its peak. When these large tech stocks show a slow grind up rather than a sharp crash up, retail investors' interest wanes.Garrett also discussed the cost issues of one-year at-the-money (ATM) call and put options. Currently, the cost of one-year ATM call options is very high. Considering the impact of interest rates and dividends, buying a one-year SPX 5900-point call option, if it reaches Goldman Sachs' forecast of 6500 points for the S&amp;P 500 by the end of 2025, would yield an expiration return rate of only about 20%.Volatility Pressure Index. This is a volatility indicator customized by Goldman Sachs, which includes several factors such as VIX volatility, ATM option implied volatility, volatility skew, and term structure. This index began to rise at the end of the year.Changes in systemic fund positions. The recent market decline may trigger sell-offs from systematic funds such as trend-following and risk parity. According to Goldman Sachs' estimates, they have sold about $28 billion of global stocks in the past week, and may sell another $28 billion in the coming week.

The S&P 500 Index closed the year with four consecutive trading days of decline, marking the longest year-end drop since 1966. Goldman Sachs' top trader Garrett stated that the market performance in the last two weeks of this year deviated significantly from his original expectations, with signs indicating that the first year of Trump's second term will not be smooth sailing for the market. Goldman Sachs recommends allocating some funds to gold and using 6-month options for market downside protection

- On the last trading day of 2024, the S&P 500 index experienced its longest year-end decline since 1966, despite a strong overall performance.  
- Goldman Sachs' Brian Garrett noted that actual market volatility exceeded expectations, with a significant increase in short positions and a shift towards risk management.  
- The report suggests focusing on equal-weight indices, mid-cap stocks, and gold investments, while highlighting a new volatility pattern in the options market and a notable decline in market breadth.

Goldman Sachs top trader: The performance of U.S. stocks in the past two weeks has been too surprising, be cautious in 2025!