Confidence at Zero! Goldman Sachs Interprets Hedge Fund Positions: "Capitulation Liquidation," Largest Loss Since the Pandemic

Last week, hedge funds finally "threw in the towel." According to the latest data from Goldman Sachs, U.S. fundamental long/short funds drastically cut leverage in a single week, marking the largest deleveraging since the market crash during the Covid pandemic in March 2020. Net leverage dropped to the 0th percentile over the past five years, and U.S. equity managers now hold the lightest positions seen in half a decade. At the same time, tech stocks have faced sell-offs far greater than this summer's turbulence, CTA quant strategies continue to sell, and nearly all market sentiment indicators are flashing panic signals.

On Monday, November 9, Goldman Sachs' prime brokerage data showed that U.S. fundamental long/short funds reduced total leverage by 8.7 percentage points last week—the biggest weekly drop since March 2020—and net leverage fell 3.7 percentage points to 43.3%, standing at the 0th percentile for the past five years. In a report on Monday, Goldman Sachs trader Pierre Saboureault summarized that deleveraging had accelerated to its fastest pace since July, with net leverage for fundamental long/short funds hitting 1-year, 3-year, and 5-year lows. Last Thursday showed the typical traits of a "capitulation" sell-off.

Tech stocks bore the brunt. Since early October, Goldman Sachs U.S. trading desk clients have net sold more than $30 billion in tech stocks (TMT and communications services), far exceeding the $21-23 billion sold during the July momentum correction. Meanwhile, CTA quant strategies sold about $11.6 billion in S&P futures and $3 billion in Nasdaq futures in five days last week, and models forecast that continued selling across scenarios is likely over the next week.

Largest Deleveraging Since the Pandemic: Net Leverage Drops to Five-Year Low

Goldman trader Nelson Armbrust detailed the scale of this deleveraging in the November 9 "Daily Points" report. Total leverage for U.S. fundamental long/short funds fell by 8.7 percentage points to 207.5% (yearly 26th percentile); net leverage fell 3.7 percentage points to 43.3% (five-year 0th percentile). Beta-adjusted total leverage fell nearly 16 percentage points in a week, with year-to-date total leverage down 11 percentage points and net leverage down 11.6 percentage points, erasing more than half of the 21.9 percentage point total leverage increase for all of 2025. The long/short ratio stands at 1.527, at the 1st percentile for both three and five years.

Armbrust said, "This is a strong signal that positions are being cleaned out."

Notably, if macro accounts and systematic accounts are included in the global prime brokerage book, overall total leverage actually ticked up 0.1 percentage points to 314.2% (85th percentile for the past year), but net leverage slid to the 4th percentile and the long/short ratio dropped to the 3rd percentile. In other words, there remains significant exposure in the market, but almost no conviction.

From a global perspective, Saboureault’s data shows net selling of global equities (-1.0 standard deviation yearly), an accelerated pace of deleveraging (-0.8 standard deviation yearly, the largest dollar de-risking since July), and the scale of selling in long positions was five times greater than short covering. Single stocks have been net sold for eight consecutive weeks, while macro products have been net bought for three weeks in a row. Global fundamental long/short net leverage of 45.3% is the lowest in the past 12 months, at the 0th percentile for one- and three-year windows, and the long/short ratio is the lowest on Goldman’s books in five years.

Morgan Stanley previously pointed out that the ongoing de-risking through the summer and October was the longest de-risking period for L/S funds in 15 years—before last week's "bloodbath." After last week, U.S. net leverage fell further from Morgan Stanley's recorded 51% to Goldman’s 43%.

Historical Tech Stock Selloff; Industrials See Five-Year Largest Net Sale

Tech was the main casualty of this round of selling. The information technology sector posted the largest net outflows globally and in the U.S.—this week’s global tech stock net selling rivaled the largest weeks on Goldman's record since 2016, with four out of the five largest net sell weeks occurring in the past five months.

Goldman prime broker Robbie Stankard noted that, in percentage terms, this week's global tech stock selling is on par with mid-October and September 2024, all marking the highest net sell weeks since 2016.

In the report "Turning the Page on Last Week," Goldman trader John Flood wrote: Since early October, Goldman Sachs U.S. trading desk clients have net sold about $30 billion in tech stocks (TMT and communications services), including around $6 billion last week alone. By comparison, the July momentum correction saw net sales of about $21-23 billion—this round exceeds July by 30%-40%. The only positive signal: On November 6 (Friday), there was the first net buying of tech stocks in seven trading days, totaling about $1 billion.

Industrials did not escape unscathed either. Industrials was the second-largest net sold sector globally, seeing the largest percentage net sales in five years, and has been net sold for four straight weeks. At the subsector level, electrical equipment, building products, aerospace & defense, and trading companies & distributors led declines, while passenger airlines and machinery saw net inflows. Stankard pointed out that the declines in electrical equipment and building products were not coincidental—they are linked to data center power trading.

Year-to-date, net selling in TMT has returned close to July lows, while the five-day selloff in Industrials last week was over 3 standard deviations—the most among U.S. sectors.

On performance, Goldman prime brokerage estimates show that U.S. fundamental long/short funds lost 1.94% last week, with their global peers down 1.48%; the S&P 500 total return index dropped 4.74% in the same period. U.S. equity managers have returned just 5.47% so far this year, lagging the S&P 500’s 8.43%. Tech-themed funds fared even worse, wiping out gains for the year by Thursday.

Positioning Structure: Mag 7 Near Record Highs, Housing and Power Turn Net Short

Despite the largest deleveraging since the pandemic, several noteworthy positions remain in Goldman's book. Flood outlined five prominent sector exposures in the current prime brokerage book:

Mag 7 and Mega Cap Cloud Computing (net positioning still near record highs)

Housing/Homebuilders (net short on the book, long/short ratio at five-year lows)

Restaurants (long/short ratio at five-year lows)

Power/U.S. Electrical Equipment (net short on the book, long/short ratio at five-year lows)

SMID Biotech (still net long, long/short ratio over 3, but about three-year lows)

Most notably: After experiencing the largest deleveraging since the pandemic, net positions in Mag 7 and mega cap cloud computing stocks remain near historical highs, while the book has turned net short on housing and power/electrical equipment. In other words, while funds have broadly sold tech stocks, they are still clinging to long positions in the "money printers" (mega cap cloud giants). If markets deteriorate further, this last crowded trade may be the next liquidation target.

CTA Quant Strategies: Selling Across All Scenarios, Up to Another $45 Billion Could Be Offloaded

Last week, CTA quant strategies acted as a downside accelerator. Estimates say CTAs sold about $11.6 billion in S&P futures and $3 billion in Nasdaq futures over five days last week.

Even more concerning is the upcoming pressure. Saboureault’s systematic strategy summary shows that systematic/CTA signals are currently negative in 50%-60% of global equity markets, including the S&P 500 and most major markets.

Stankard’s scenario analysis suggests that over the next week, CTAs will be sellers regardless of market direction:

• Flat scenario: Sell about $23.3 billion (S&P about $31.1 billion)

• Up scenario: Sell about $3.9 billion (S&P about $23.1 billion)

• Down scenario: Sell about $48.7 billion (S&P about $31.5 billion)

In the coming month, only in a strong upside scenario do CTAs turn buyers (buying about $74 billion, with $14.4 billion S&P); in a downside scenario, global equity selling could reach approximately $149.5 billion.

Key technical levels for the S&P 500: short-term around 7,675, medium-term around 7,549, long-term around 7,084. The index currently closes above these levels, which is why quant strategies continue to sell.

Panic Signals All Flashing, Only Exception Is Goldman's Own Sentiment Composite Index

Multiple market sentiment indicators have issued strong panic signals.

Goldman's "Panic Index": Armbrust noted that readings above 9 have historically been a buying opportunity; it hit 9.57 last Thursday and finished the week at 9.2.

"Multiple Surprise Ratio": Created by Goldman derivatives expert and strategist Brian Garrett, this indicator measures an asset’s single-day price move versus the prior day’s implied option volatility. This week, the S&P 500 saw its biggest reading in 19 years, Nasdaq was the second highest, and the Russell 2000 in the top five—options markets have underestimated this volatility more than in any time over the past twenty years.

Market microstructure is also under pressure: S&P futures order book depth has dropped to $4.15 million, far below the $11.4 million average; 1-month implied correlation has surged from less than 10% in summer to about 26%; the Nasdaq-S&P implied volatility gap widened to nearly 9 percentage points, nearing the 12.6-point summer momentum crash record; put skew remains high at 1.20 while call skew has dropped to 0.76.

Goldman's Risk Appetite Index (GSRAII) has fallen to -0.65, but has not yet reached Armbrust’s strong buy threshold at -1. During the March 2020 pandemic low, the index hit -2.03.

Retail investors are also starting to waver. Saboureault's single-word description for retail: "blinked." Last week saw the two most negative daily buy/sell bias readings since early June, with retail net buying of the S&P 500 plunging below zero twice. The AAII survey shows bearish sentiment rose 7 points to 48.4% as of the week of November 4, 17 points above the historical average; CNN’s Fear & Greed Index came up from 19 to 24, but remains in "Extreme Fear" territory.

The only exception is Goldman's own U.S. equity sentiment indicator (Sentiment Indicator). This composite indicator covers nine positioning metrics across institutions, retail, and foreign investors, actually rising from +0.2 to +0.6. The light positioning signal’s threshold is below -1.0, and the indicator is far from there. The reason: continued buying by mutual funds and foreign investors keeps it in positive territory, so the contrarian "everyone’s out" signal is not complete.

Who’s Taking the Other Side? Mutual Funds and Corporate Buybacks Buying Against the Tide

On the other side of hedge funds’ massive liquidations are "slow money" buyers.

On mutual funds, according to EPFR data, as of the week ending November 4, global equity funds saw net inflows of about $89 billion (vs. $56 billion the prior week), with about $37 billion flowing into the U.S.; over the past four weeks, cumulative inflows totaled about $265 billion, with $111 billion going into the U.S. Tech funds again saw the largest and most positive net flows, despite severe volatility in AI stocks. The size of cross-border flows into U.S. funds continues to rise, approaching $1 trillion since 2022.

On corporate buybacks, about 90% of S&P 500 components are now out of their buyback blackout windows, expected to reach about 93% by this weekend. According to Goldman’s buyback desk, buyback activity picked up sharply last week, fueled by post-election momentum and a busy earnings season; discretionary open market orders jumped from 22% to 33% week-over-week, with execution volume about 1.6 times last year’s average daily level. So far in 2026, authorized buybacks have reached $1.5 trillion, topping the 2025 annual record of $1.37 trillion.

Still, supply pressure is not to be ignored—last week, North American IPO and follow-on supply hit $16.3 billion, bringing the YTD total to $536 billion, so corporate buybacks still have substantial supply to absorb.

Long/Short Battle: After Position Shakeout, The Bottom May Have To Wait For CTA To Finish Selling

Despite a tough week, Flood listed four constructive reasons: S&P 500 Q3 EPS growth is tracking 35% YoY; market breadth has improved greatly; S&P 500 P/E of about 18x is at the 31st percentile of the past decade, with Communication Services at the 4th percentile of its ten-year history; corporates are actively buying the dips.

Armbrust quoted Goldman’s semiconductor analysts, who say related stocks are now clearly oversold, making risk/reward attractive in certain names—notably NVIDIA, Broadcom, Applied Materials, and Lam Research.

However, multiple headwinds remain unresolved. Saboureault summarized: “With oil prices down, yields falling, volatility still needs to stabilize before capital re-enters.” Until volatility stabilizes, the Tuesday CPI data drops, and NVIDIA’s November 17 earnings are out, last week may have been the hedge funds' "moment of capitulation"—but the true market bottom may still need to wait until CTAs complete the remaining selling programs.