Last week, the S&P 500 experienced its most significant sell-off since March 2020, dropping over 9%. Goldman Sachs traders noted the market's unpredictability exceeded expectations. According to top trader John Flood, the market may not have hit bottom yet, as global tariff escalations begin to impact GDP growth, corporate earnings, and inflation. Despite this, Goldman Sachs data suggests a 70% chance of positive returns for the S&P 500 over the next two weeks when market sentiment is low.
The market's volatility was unexpected, with the S&P 500 dropping 4.84% on a Thursday, marking the worst single-day performance since June 2020, followed by a 5.97% decline on Friday. April 4 saw record trading volumes, with 26.6 billion shares traded, surpassing the previous high during the GameStop frenzy in January 2021.
Hedge funds engaged in significant net selling, driven by short positions, with a record nominal short trading volume. Institutional investors also sold heavily, particularly in financial, industrial, and tech sectors. Mutual funds' cash levels hit a historic low, indicating potential further selling pressure.
While market volatility persists, long-term opportunities remain. Goldman Sachs economists anticipate a 35% chance of recession, with tariffs potentially increasing inflation and reducing earnings growth. The upcoming earnings season may reveal overly optimistic consensus expectations for S&P 500 profitability.
