Institutional Insights: Goldman Sachs Flow of Funds Update 2/12/25
Goldman Sachs flow experts (Gail Hafif, Brian Garrett, Lee Coppersmith) suggest investors focus on top "deals" despite a generally upward trend into year-end.
1. CTAs:
- November: CTAs sold $23B in US equities (~$1.2B/day).
- Projections:
- 1 Week: Flat tape: Buy $15.62B ($5.12B US); Up tape: Buy $19.22B ($4.34B US); Down tape: Sell $14.42B ($1.95B US).
- 1 Month: Flat tape: Buy $37.09B ($12.04B US); Up tape: Buy $61.43B ($14.73B US); Down tape: Sell $142.34B ($51.95B US).
- Pivot level: Watch 6716 for trend reversal.
2. Volatility:
- S&P realized volatility has eased; implied levels remain slightly elevated.
- Systematic volatility-based groups are cautiously re-entering.
3. Systematics:
- VIX dropped from 28 to 16 in a week, marking a significant volatility crush.
- Expect modest demand from systematic investors with limited supply unless disruptions occur.
4. Gamma:
- Dealers are long gamma at current levels, muting market moves on the upside and slightly amplifying downside moves.
- No major downside short gamma risks unless moves exceed 1%.
5. S&P Correlation:
- 1-month implied correlation at 20%, reflecting recent dispersion.
- Active stock picking is key, as themes drive individual winners and losers.
6. Factors:
- Monetary policy and global growth factors are rising due to easing recession fears.
- Low-risk appetite signals opportunities in US$ and Euro-area risk components.
7. Fund Flows:
- Equities dominate (~75% of total assets).
- Positive equity trends expected in 2026, with opportunities in EM and China.
8. Retail:
- Retail buying remains steady despite Bitcoin's decline.
- Dip-buying continues but at a moderated pace compared to earlier highs.
9. Panic Index:
- GS Panic Index fell from 9.6 (Nov 20) to 4.09, indicating reduced fear.
- Watch for volatility-driven changes.
10. Buybacks:
- Corporate buybacks support equities through mid-December, with volumes 1.6x 2024 YTD and 1.8x 2023 YTD averages.
- Support wanes post-12/19 until 2026.
Year-End Trends:
- Early December often choppy for S&P/Nasdaq, but the second half is historically positive.
- Investors should focus on stock-specific action and remain agile.
Trades to Consider:
- SPX Dec 31 6950/7125 Call Spread: Costs $42, max payout 4.2x.
- QQQ Dec 31 635/660 Call Spread: Costs $4.62, max payout 5.3x.
While buybacks and retail activity persist, early December may be volatile before a stronger finish into the holidays.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!