A senior trader at Goldman Sachs pointed out in a review that the recent global risk asset sell-off is essentially a multi-factor overlay, layered transmission, ultimately evolving into a systemic sell-off .
According to the Chase Wind Trading Desk, Rich Privorotsky, a trader in Goldman Sachs' Global Banking &amp; Markets division, conducted a detailed review of the recent global market decline in a latest research report, indicating that the market turbulence stems from the cumulative effects of four major factors: from the Federal Reserve's unexpected hawkish turn, to the internal severe differentiation of the AI sector logic, to the flash crash in cryptocurrency triggering retail investors to &#34;abandon ship,&#34; and finally triggering concentrated selling pressure from quantitative funds, the market has slid from &#34;technical turbulence&#34; to &#34;structural decline.&#34;
The trader emphasized that despite Nvidia's strong earnings report, it is no longer the core focus of AI investment. The real game-changer is the breakthrough progress of Google's Gemini-3 model, which is a &#34;disruptive model&#34; (step-change model) that is reshaping the entire AI investment ecosystem, leading to delays in product cycles for other companies, increased capital expenditures, and more uncertain returns on investment (ROI).
The extreme volatility in the cryptocurrency market has become a &#34;barometer&#34; for retail investors' risk appetite, triggering a chain sell-off of unprofitable tech stocks and AI-related stocks. Meanwhile, since August, trend-following funds (CTAs) holding over $500 billion in long positions have begun to massively close positions, with technical factors completely dominating fundamental logic in the short term.
Goldman Sachs' technical charts indicate that the S&amp;P 500 mini futures contracts may further dip to the 6,500-point level; however, Privorotsky believes that the fundamental value logic of AI technology has not changed, and the true long-term winners will be those labor-intensive companies that achieve marginal profit expansion through automation.
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<h2>Federal Reserve's &#34;False Dovishness,&#34; Essentially Hawkish: The Starting Point of the Downward Chain</h2>
In the review, the Goldman Sachs trader focused on analyzing the subtle changes in the Federal Reserve's stance. The latest employment data presents contradictory signals: job growth appears robust, but the unemployment rate unexpectedly rose to 4.44%.
Analysis shows that the rise in the unemployment rate is mainly due to a large influx of labor from the 16-24 age group into the market, while the unemployment rate for older groups has actually decreased. However, the three-month average of new jobs has only dropped to 62,000, and Goldman Sachs' internal employment tracking indicator shows potential new jobs at only 39,000.
Even more concerning is the continued downward revision of employment data, with August's data being particularly weak. Combined with the layoff data released by the corporate human resources company Challenger and the ongoing trend of companies reducing their workforce, this combination is enough for the Federal Reserve to release more dovish signals, but the reality is: the Federal Reserve is still adhering to a hawkish tone, and the market's bets on a rate cut in December have been quickly withdrawn—the probability of a rate cut forecast is now &#34;essentially zero&#34; (odd's off)
Privorotsky was surprised by the Federal Reserve's cautious stance, stating, &#34;Maintaining a hawkish position in this employment context is a policy mistake. I personally hold this view.&#34;
This is the first domino in the big drop.
<h2>The protagonist of AI narrative changes: Google's Gemini-3 raises &#34;winner-takes-all&#34; concerns</h2>
The second layer of reasons for this round of tech stock adjustment is not Nvidia, but Google.
Goldman Sachs traders pointed out a key shift in the AI narrative: &#34;Nvidia's performance was already strong and completely in line with expectations, but it is no longer the 'epicenter' of AI investment; the real focus has shifted to Google and the disruptive breakthroughs represented by its Gemini-3 model.&#34;
This will force other companies to delay their product development cycles, increase capital expenditure demands, and make investment returns more uncertain. This explains why enterprise software companies like Oracle failed to follow Nvidia's rise.
The market is forming a clear &#34;winners and losers&#34; pattern, and there is a risk of a &#34;winner-takes-all&#34; dynamic emerging in the model field. This differentiation is not only reflected in the fundamentals but also in the technical factors that are firmly controlling market trends in the short term.
<h2>Cryptocurrency market flash crash: Retail investors turn from &#34;diamond hands&#34; to &#34;selling hands&#34;</h2>
The report specifically pointed out that the recent sharp decline in cryptocurrencies is not an isolated event.
Over the past two years, retail investors' behavior pattern has been to buy and not sell, buying more as prices drop, thus being referred to as &#34;diamond hands.&#34; However, this time, a qualitative change has occurred: multiple whale accounts have continuously sold large amounts; retail investors are no longer &#34;holding firm,&#34; but are actively cutting positions; after a significant drop in crypto assets, the spillover pressure has transmitted to unprofitable tech stocks and AI concept stocks.
This may be related to Federal Reserve policies, or it may be that the underlying consumers in the K-shaped recovery are finally feeling pressure and starting to sell off the most speculative assets.
But regardless of the reason, the cryptocurrency market has become an important &#34;barometer&#34; of retail investor risk appetite. Moreover, this panic sentiment is spreading to unprofitable tech stocks and AI-related stocks. Palantir's performance is the most typical: it quickly turned from a 5.5% intraday rise to a 6% drop, completing a full &#34;round trip.&#34;
In simple terms, the risk appetite of retail investors has begun to significantly downgrade, a signal not seen in the past year. Privorotsky commented: &#34;If these 'diamond hands' are no longer HODLing (holding without selling), then the market structure has fundamentally changed.&#34;
<h2>Quantitative and systematic funds initiate &#34;mechanical selling&#34;: decline enters acceleration phase</h2>
What truly pushed the market into a &#34;loss of speed decline&#34; is the last link: systematic funds.
According to a Goldman Sachs report, trend-following funds (CTAs) and systematic trading strategies have held over $500 billion in long positions since early August. Since August, their long positions have not triggered sell thresholds.
However, once the index breaks through key levels, it will trigger continuous selling.
As realized volatility rises, volatility control (vol-control) strategy funds begin to sell, coupled with the fact that the volatility market previously gained local support through fixed strike price gamma values, while VIX ETN fund flows created a &#34;short tail, short convexity&#34; configuration
This combination will produce a huge amplification effect when the market sharply declines.
The end result is: the originally stable &#34;low volatility structure&#34; of the market collapses in an instant. Systematic funds act like a machine, collectively selling off after being triggered by price movements.
This is why the market can experience: no news, no events, yet suddenly plummet. Because this is not man-made, it is the chain reaction triggered by quantitative models.
<h2>Fundamental Pressure: AI Expansion Encounters &#34;Capital Bottleneck&#34;</h2>
Goldman Sachs traders deliberately avoided the debate on &#34;whether AI is a bubble,&#34; believing that the more critical variable has become: the capital cost of AI investment is rising.
From a fundamental perspective, the most significant change is the condition of the corporate bond market—an issuance wave is about to arrive, and AI data centers need to be built up with &#34;debt.&#34; He posed a thought-provoking question: if credit spreads have already peaked, is it still worthwhile to engage in arbitrage trading at tightened spread levels?
When capital is no longer cheap, the pace of AI expansion may also be forced to slow down. This is a risk that the market has not fully priced in over the past year.
Goldman Sachs traders maintain their previous target of 6,500 points and stated that they will stick to their analytical process. Although the short-term trend is &#34;ugly,&#34; and the market may be oversold, he still adheres to his system:
&#34;I am still waiting for the mini contract of the futures to reach 6,500 points, which is the key level I wrote down weeks ago.&#34;
He believes the market may overshoot in the short term, but the long-term direction has not changed: AI is a breakthrough technology; value creation ultimately reflects in stocks, not in macro; the real long-term winners are &#34;AI adopters,&#34; that is, ordinary enterprises outside the tech industry.
When will the market stabilize? The Goldman Sachs trader provided three conditions:
<ul>
<li>CTA positions are cleared</li>
<li>Retail investors are excessively long and squeezed out</li>
<li>At least two of the following triggers are met: cryptocurrency stabilizes, the Federal Reserve clearly shifts to dovish, AI capital expenditures receive &#34;some support&#34; at the policy or market level</li>
</ul>

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The key to this round of sharp decline lies in the breaking of multiple market consensus: the Federal Reserve unexpectedly turned hawkish, eliminating interest rate cut expectations; Google's Gemini-3 reshaped the AI landscape, transforming AI from a "broad rise" to a "winner takes all" scenario; retail investors were shaken by the crash in the cryptocurrency market, shifting from "diamond hands" to "selling hands"; systematic funds (CTA, vol-control) passively cut positions amid amplified volatility, ultimately leading to a conversion from technical selling to systematic selling

- A recent analysis by Goldman Sachs trader Rich Privorotsky attributes the global market downturn to a combination of factors, including a hawkish shift from the Federal Reserve and significant volatility in the AI and cryptocurrency sectors.  
- The report highlights that the focus of AI investment has shifted from Nvidia to Google's Gemini-3 model, which is reshaping the investment landscape and increasing uncertainty in capital expenditures and returns.  
- Privorotsky suggests that the market may have overshot its decline, but the fundamental value of AI remains intact, with long-term winners likely to be labor-intensive companies that leverage automation for profit expansion.

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Understanding the Logic Behind the Big Drop – Goldman Sachs Traders "Review": The Federal Reserve Turns Hawkish "Kicks Off", Google Rather Than Nvidia Reshapes "AI Trading", Cryptocurrency Market Devastates Retail Investors, Ultimately Leading to "Systematic Sell-off"