The U.S. stock market may have reached an upward turning point, but there are still three key obstacles to overcome.
According to the latest market observations by Goldman Sachs' top U.S. trader John Flood, the U.S. stock market has recently experienced significant volatility, but some positive signals have emerged, including a reduction in overseas selling pressure on large tech stocks and significant net buying by hedge funds in a single day.
Flood emphasized, the next focus should be on three key confirmation signals—market breadth, liquidity depth, and ETF trading volume ratio—improvements in these signals will be important indicators confirming the market's upward trend. Until these confirmation signals appear, aggressively chasing gains may still carry risks.
<h2>Are Positive Signals Starting to Emerge? Reduced Overseas Selling, Hedge Funds Tentatively Replenishing</h2>
From April 3 to 7, the S&amp;P 500 index sharply fell from 5,462 points to a year-to-date low of 4,835 points, followed by four consecutive trading days of gains, rebounding a total of 735 basis points to close at 5,525 points.
Flood observed that last week, the heavy selling pressure on large tech stocks, previously driven mainly by large international sellers, began to ease. After Intel and Google announced their earnings, some scattered asset management firms increased their demand for the &#34;Mag 7,&#34; which constitutes a positive signal.
Whether this dynamic of increased long buying in the U.S. and reduced international selling will continue is a key focus for Goldman Sachs.
Another positive signal is that last Wednesday, U.S. stocks on Goldman Sachs' prime brokerage platform experienced the fifth largest net buying day in the past year (2.2 times the standard deviation), primarily driven by short covering in macro products and long buying in individual stocks. Among them, macro products and individual stocks accounted for 68% and 32% of the total nominal net buying amount, respectively.
Although this is just one trading day's situation, covering macro shorts and buying individual stocks is generally seen as a more constructive behavior. Flood stated that if he sees a few more days of such activity next week, he would become more optimistic.
Additionally, Flood pointed out three positive dynamics currently present in the market:
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Corporate earnings reports are decent: Google's solid earnings report avoided a potential wave of &#34;Mag 7&#34; selling. Currently, companies accounting for 30% of the S&amp;P's market value have reported earnings (another 40% will report this week). 46% of companies exceeded earnings expectations by more than one standard deviation (slightly below the historical average of 48%), while only 10% of companies fell short of expectations by more than one standard deviation (below the historical average of 14%). Overall, earnings reports have performed better than traders' pessimistic expectations.
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Retail buyers remain undeterred: Unless unemployment rates begin to rise, retail investors' buying may persist.
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Corporate buyback window is opening: According to Goldman Sachs, the corporate buyback window from April to May has historically performed strongly. These two months are the third-best period of the year, accounting for 20% of executed buybacks. Goldman Sachs' buyback trading department estimates authorized buybacks at $1.45 trillion, with executed buybacks at $1.16 trillion. This will provide support for the market during the busy earnings season. Additionally, the pension rebalancing at the end of April is expected to bring about $15 billion in stock buying, and various indicators from commodity trading advisors (CTAs) generally show bullish signals
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<h2>Cautious sentiment persists, three market indicators still need improvement</h2>
Despite more constructive capital flows and price movements last week, Flood believes the market has not fully escaped danger. He pointed out that the S&amp;P 500 index is now trading at the same level as before the announcement on April 2, &#34;which feels a bit off.&#34;
Flood also stated that he is confident the market's bottom has been raised. On trading days following the announcement of tariff policies, most investors he communicated with believe that around 4600 points is a reasonable bottom (based on a median calculation of a 25% pullback from the peak during an economic recession), and now most of those buyers expecting 4600 points have raised their anticipated bottom to 5000 points.
Flood emphasized that before he advises traders to buy more aggressively, further progress needs to be seen in the following three areas:
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Market breadth: Currently still far below historical averages. A broader participation of stocks in the rally is needed.
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Liquidity: The best bid-ask depth of S&amp;P E-mini futures is currently about $4 million, although this is higher than the level below $1 million on April 9 (the last time this happened was in March 2020), it is still far below the historical average of about $13 million. This means the market is relatively fragile, and significant price fluctuations can be triggered with a small amount of capital, so preparations for ongoing volatility are necessary.
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Proportion of ETF in total trading volume: Due to ongoing challenges in futures liquidity, professional investors are increasingly relying on ETFs for hedging. The proportion of ETF trading reached as high as 44% on April 9 and is currently about 35%. Flood hopes to see this ratio fall below 30%, which typically indicates a decrease in market hedging demand and a rebound in risk appetite
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Goldman Sachs traders found that since last week, foreign investors' selling pressure on U.S. tech stocks has weakened, and hedge funds are tentatively replenishing their positions. The good performance of the first quarter reports, stable retail buying, and the corporate buyback window are all sending positive signals. To confirm the upward trend in the market, improvements in three indicators—market breadth, liquidity, and the proportion of ETF in total trading volume—are still needed

- The U.S. stock market may have reached an upward turning point, but three key obstacles remain.  
- Recent observations by Goldman Sachs' John Flood indicate a reduction in selling pressure from large tech stocks and significant net buying by hedge funds, suggesting potential positive momentum.  
- However, improvements in market breadth, liquidity depth, and ETF trading volume are necessary to confirm a sustained upward trend before traders can confidently increase their positions.

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Goldman Sachs traders: Positive signals appeared in the US stock market last week, but whether they can be sustained depends on these three points