Shorting ETFs and the VIX are both soaring! Goldman Sachs exposes the "false calm" in the US stock market; the market is actually extremely fragile.

The U.S. stock market is experiencing an abnormal “false prosperity.”

On March 8, Goldman Sachs’ Sales and Trading team released a research report stating that despite frequent geopolitical headlines, the S&P 500’s volatility appears relatively stable, but internal pricing logic has sent a clear warning.

Goldman Sachs liquidity analysis expert Lee Coppersmith bluntly pointed out: “The market pressures indicated by panic signals are far heavier than what headlines suggest.”

Panic signals versus index performance “scissor gap”

Historically, since 1950, increased geopolitical risks typically trigger about a 4% weekly decline in the S&P 500, and markets usually recover to pre-turbulence levels within a month.

This decline in the U.S. stock index (-3.4%) is still within controllable range, but the issue lies in the “internal pressure.”

Goldman Sachs’ “US Vol Panic Index” closed at 9.72 on Friday. This indicates that, although the market looks stable, its tolerance for bad news has hit a freezing point.

Coppersmith warned: “Under the relatively calm surface of the index, market trading shows extreme fragility. Once bad news hits, risk exposure will rapidly expand.”

Investors: Hedging More While Refusing to Reduce Positions

The current defensive strategy reflects a contradictory mindset: everyone is buying insurance but not planning to retreat.

Goldman Sachs data shows that U.S. stocks have been net sellers for three consecutive weeks, mainly driven by hedging needs. The most notable sign is an 8.3% weekly surge in short ETF positions, the largest since the “Tariff Liberation Day,” and the second-largest increase in the past five years.

Investors are heavily increasing short positions in corporate bonds, energy, small-cap stocks, and large-cap ETFs. However, this hedging has not translated into actual risk exposure adjustments.

Goldman Sachs data indicates that total market leverage has only slightly decreased to 307.4, still in the 99th percentile over the past five years; net leverage has only dropped 1 point to 79.2%. This means investors are merely adding a protective layer around existing positions, not truly “de-risking.”

Crowded “AI Cabin”

The current market leadership is highly concentrated, which is itself the biggest systemic risk.

Goldman Sachs prime brokerage (PB) holdings data shows that net exposure to “medium- to long-term momentum factors” has risen to 55%-60% of fund stock holdings, reaching multi-year highs. This indicates all market money is concentrated in a single style of winners.

This crowding acts as a push during upward moves but becomes disastrous when leadership cracks.

In fact, this turbulence has already begun to show in hedge fund performance. From February 27 to March 5, Goldman Sachs’ fundamental long/short (L/S) portfolios estimated a decline of 3.22%, the worst since June 2022.

The market’s “violent rotation” also confirms this: sectors like copper mining, storage chips, and metals, which led gains earlier this year, have been heavily sold off, while previously neglected sectors like “high-risk software” and “high-risk AI” have rebounded. This is a typical factor-based shakeout.

Profit Engine Driven by AI

Ultimately, the profit engine of the U.S. stock market still heavily depends on a few tech giants.

In 2025, seven AI-related stocks—Amazon, Broadcom, Google, Meta, Microsoft, Micron, and Nvidia—contributed about half of the S&P 500 EPS growth. This trend is expected to continue into 2026, with Nvidia alone projected to contribute 24% of total profit growth.

As Goldman Sachs analyzed, the current macro turbulence may dissipate quickly like other geopolitical conflicts in history. But the core issue is that, due to high leverage, extremely crowded positions, and over-reliance on a single sector for profits, this “fragile balance” could be broken at any time.

Coppersmith summarized: “Until positions become more diversified or leadership accelerates again, market volatility will be much greater than what the index itself suggests.”

Risk Warning and Disclaimer

Market risks are present; investments should be cautious. This article does not constitute personal investment advice and does not consider individual users’ specific investment goals, financial situations, or needs. Users should consider whether any opinions, views, or conclusions herein are suitable for their particular circumstances. Invest at your own risk.