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(Bloomberg) -- A bearish trade is looming for US equities, according to Goldman Sachs Group Inc.’s Scott Rubner.
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The market is increasingly crowded and dip-buying is running out of steam, Rubner said. The managing director for global markets and tactical specialist was rightfully bullish heading into 2025, while touting an upcoming negative turn. In a note on Wednesday, he said this was his “last bullish email” for the first quarter.
“Everyone is in the pool, including retail traders, 401k inflows, start of the year allocations, and corporates,” he said. “The flow demand dynamics are quickly changing, and we are approaching negative seasonals.”
The S&P 500 gained 3% since the beginning of the year. Even if that’s a sideways trade from December, the market has actually shown remarkable resilience. Neither the DeepSeek worry nor US President Donald Trump’s tariffs sparked a widespread correction. Wednesday’s higher-then-expected inflation print was the latest example of stocks bouncing quickly from an intraday low despite negative news flow.
“My highest conviction is that this massive ability to buy dip alpha is starting to wane,” Rubner said. Among his slowing demand “checklist” are trend followers which are asymmetrically skewed to the downside. These commodity trading advisers, or CTAs, are estimated to sell about $61 billion in US stocks over the next month should markets go lower, compared to only about $10 billion of buying in a bullish scenario.
Corporate buybacks are still an area of support but their activity window will close on March 16. Meanwhile, hedge funds have allocated a lot of risk back into the market with global equities last week seeing the largest net buying in two months, Rubner said.
There are still unanswered questions about the retail buying force that unfolded over the past 22 trading days. These traders were quick to buy any dips, resulting in “massive numbers,” including three days with highest so-called retail imbalance on record. Those early year flows tend to fade into March.
Rubner suggested looking at tactical downside trade ideas including dual binary and put spread options on the S&P 500 Index, so-called lookback put hedges or a combination of trades in the Euro Stoxx 50 and the euro-dollar exchange rate.