The U.S. stock market is witnessing an unprecedented ETF trading frenzy, with both ETF trading volume and short selling nearing historical extremes against the backdrop of ongoing geopolitical tensions.
According to the latest data from Goldman Sachs Prime Brokerage, the single-day increase in short positions for U.S.-listed ETFs on Friday marked the second-largest increase on record for Goldman Sachs, second only to the &#34;Tariff Day&#34; on April 2, 2025. Meanwhile, for the past nine trading days, ETF trading volume has consistently accounted for over 35% of the overall market trading volume, marking the second-longest consecutive record in Goldman Sachs' data set.
It is noteworthy that the last time a similar consecutive record occurred, the VIX index was above 70, while the current volatility level is significantly lower than that time, raising concerns among market participants.
Goldman Sachs' chief U.S. trader, John Flood, warned in an interview with Bloomberg that the total leverage of hedge funds is currently close to a historical high of 307%, driven by ongoing ETF short selling (hedging), which means that once positive signals emerge in geopolitical situations, the risk of short squeezes at the index level will be extremely severe. &#34;If there is news announcing the end of the conflict, the index could spike 2% to 3%, with most of that coming from short covering in macro products,&#34; he said.
<h2>ETF Short Selling Approaches Historical Extremes</h2>
Goldman Sachs Prime Brokerage data shows that amid heightened market volatility and ongoing geopolitical tensions, the single-day increase in short positions for U.S.-listed ETFs reached +10%, marking the second-largest single-day increase on record since 2016. The previous week, ETF shorts had already risen by +8%, and this week climbed again by +12%, with a cumulative monthly increase of +23%.
From a broader perspective, measuring the short exposure of macro products (combined indices and ETFs) as a proportion of the total market capitalization on the Prime book, the current level has risen to the highest since September 2022, sitting at the 97th percentile of five-year historical data, approaching a five-year peak.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/bb855a68-defc-4845-a6e4-e42c940dd11c.jpeg?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/bb855a68-defc-4845-a6e4-e42c940dd11c.jpeg"/>
In terms of trading volume, the market share of ETFs has also set records. Goldman Sachs data shows that over the past five years, ETFs have averaged 28% of daily nominal trading volume, and this ratio has risen to 32% in 2026. On the most volatile trading days recently, ETF trading volume accounted for nearly 40%, which Goldman Sachs described as &#34;approaching historical records.&#34;
<h2>Short Squeeze Risks Heightened, Market Liquidity in Crisis</h2>
The rapid expansion of ETF short selling is accumulating extreme right-tail risks in the market. John Flood pointed out that the total leverage of hedge funds is close to the historical high of 307%, primarily driven by ongoing short selling (hedging) through ETFs. Once clear signs of easing in geopolitical tensions emerge, short covering will trigger severe price shocks at the index level.
The market has recently shown a preview. After Trump stated that the Iran war would be &#34;resolved soon,&#34; the S&amp;P 500 index closed up 0.8% on the day, having previously dropped 1.5% during the session. Traders attributed this reversal mainly to market participants covering their previously short ETF positions.
Meanwhile, market liquidity is deteriorating sharply, approaching levels seen during the &#34;tariff day&#34; crash in 2025. Goldman Sachs estimates that the depth of the E-mini S&amp;P 500 futures market is currently about $4 million, far below the historical average of about $14 million, and below $7 million is typically seen as a signal of market stress. &#34;This means that whenever institutions attempt to buy or sell in large volumes, the impact on prices will be much greater,&#34; Flood said.
<h2>Retail Support Weakens, Market Vulnerability Rises</h2>
While institutions are hedging on a large scale through ETFs, retail investors, who have been an important source of market demand, are showing a clear decline in buying power.
According to JPMorgan's latest retail radar report, retail investors have shown &#34;persistent signs of weakness&#34; since the outbreak of the Iran conflict, with weekly buying volume down about 30% compared to before. Previously, retail investors had been buying against seasonal trends for several months, with buying volume in February reaching the third highest on record.
At the ETF level, retail investors have reduced weekly ETF net inflows by 22%, breaking a three-month period of stable support. Single-stock purchases have also contracted, with Monday seeing the largest single-stock net sell-off in nearly a month. Although there was some recovery on Tuesday and Wednesday, it remains below the average level since the beginning of the year.
John Flood commented that if the job market experiences substantial deterioration, retail support will face further risks of collapse. &#34;If we start seeing multiple negative employment data, that would be concerning; retail buying may retreat, and the market could see sell-offs.&#34; He also added that currently, a single weak non-farm payroll report is not enough to draw this conclusion.
Goldman's bottom-line judgment is that positive geopolitical developments could trigger a sharp rise in the stock market, but if the situation remains unresolved for an extended period, market pressure will continue to intensify. &#34;The market hopes to see some signal of resolution in the next two weeks,&#34; Flood said, &#34;but if this state persists longer without positive progress, we will face a severe problem at the index level.&#34;

EBIZ

The US ETF market is approaching historical extremes, with the daily increase in short interest reaching the second highest level since 2016. The total leverage of hedge funds is close to the historical peak of 307%, and market liquidity has fallen to the level seen during last year's "tariff day" crash. Goldman Sachs warns that if there are signs of easing geopolitical tensions, a short squeeze in the indices could trigger a rapid rise of 2% to 3%; however, if the stalemate continues, the decline in retail buying combined with liquidity exhaustion will pose "serious problems" for the market

- The U.S. stock market is experiencing an unprecedented surge in ETF trading amid ongoing geopolitical tensions, with ETF short positions approaching historical highs.  
- Goldman Sachs reports that the daily increase in short positions reached +10%, marking the second-largest rise since 2016, while ETF trading has constituted over 35% of total market volume for nine consecutive days.  
- There are growing concerns about extreme market volatility and liquidity issues, compounded by decreasing retail investor support and high leverage among hedge funds.

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US stocks "anomaly": ETF trading volume surges