Goldman Sees "A Cleaner Start" For Markets Heading Into November

A month ago, traders wanted to be long equities into year-end for multiple reasons:

a) the Federal Reserve was on a clear cutting cycle into decent growth

b) the macro backdrop was likely to improve into 2026 on the back of the tax refunds and potential new FOMC composition in May

c) forecast EPS for 2026 from our clients was in the 300-310 range, and

d) the Nov / Dec seasonal that is historically good has generally only been furthered in the years where SPX is up at least 15% by the end of October. 

Now, as we near the last month of the year, it's been a much more wild ride than expected with November almost back to unch...

What has really happened over the past month?

Top Goldman Sachs trader Shawn Tuteja believes that clients got a bit too excited heading into November, and anecdotally, even clients who had been bearish for months prior to November were playing for a year-end rally.

GS PB Net Leverage Over time

The overwhelming consensus view was that we could rally from November through the end of January  (potentially even have a “blow off top” moment), and then clients wanted to sell into that strength in early February once the AI story was more vulnerable to weaker forecasts and capex guidance. 

There’s a reason why our exotics desk had its most active month ever trading lookback puts in October. 

While clients were quick to short the frothier, non-profitable parts of the equity market post the 29Oct hawkish FOMC press conference (GSXUNPTC, or the non-profitable tech basket, peak-to-trough drew down about 23% and GSXUMSAL, the rolling most shorted names, drew down about 29%), there was reticence to sell popular longs until price action forced people’s hands (last week saw many questions around whether this was Q4 of 2018 all over again). 

The chart below shows how vicious the short-selling has been the last month on the current constituents of our non-profitable tech index...

But, as Goldman's Lee Coppersmith explains below, since late October, the real story hasn’t been the S&P though – it’s been the spike in factor volatility under the surface.

20-day factor volatility has now pushed above 20, while S&P vol has only drifted modestly higher.

The stress is happening inside the market, not across it…

The takeaway:

Portfolios with strong “style” bets – whether it’s Growth and Momentum vs Value and Small-Cap, or AI winners vs everything else – have been seeing much bigger swings than the market itself.

If you’ve owned anything tilted toward a specific theme or style, the ride has been far rougher than what the broader tape would suggest.

And the crowding – particularly heading into mega-cap tech earnings and the Fed – was most obvious through the options market’s lens in the Mag 7 complex.

Across the group, put-call skew flipped to outright inverted (calls trading over puts), revealing just how bullish positioning had become. Over the last week, that’s reversed sharply, and today we’re back at more neutral levels for the group.

We have rallied back into a pocket of gamma. We think dealers are long +$6.5bn of gamma here… the three day increase is the second largest in the 3+ years… all else equal, we should see realized vol start to subside and liquidity improve. On that note S&P 500 top of book depth currently at $9mm vs ytd avg of $11.5mm (remember this dipped below $3mm last week).

And to close the month, breadth has finally started to heal as well. Earlier in November, the 5-day moving average for S&P advancers–decliners flushed down toward roughly -150 – consistent with pretty bad damage beneath the surface. Into Thanksgiving, that same 5-day line has snapped back into the +150 area. It’s a big shift – broader participation, not just a narrow squeeze, and another sign that the market cleared a decent amount of stress mid-month.

Breadth has picked up notably as of late: 5-day moving average of SPX Advancers–Decliners

Our Vol Panic Index tells a similar story. At 5, we’re sitting just above the 3-year average of 4.6 (and below the 1-year average) – notably off the highs from earlier this month when stress was more visible. The composition matters too: implied vol, vol-of-vol, term structure slope, and put–call skew have all cooled together.

Systematic flows have also reset in a cleaner direction. Over the last month, we estimate roughly $16bn of S&P selling took place – a decent amount of de-risking that contributed to the correction. Looking ahead, the next-month baseline scenario now flips to modest buying (+$4.7bn). The tail risk of forced systematic supply has come down materially.

At the same time, the AI trade continues to broaden. Three years post-ChatGPT, AI is finally showing up in earnings – companies across the old economy are rolling out real AI tools tied to cost reduction and margin lift. That’s the idea behind the new GS basket GSXUPROD Index: a clean way to own the “using AI, not selling AI” theme as AI shifts from narrative to measurable productivity. We like ~6m calls on this as a placeholder on this theme.

Stepping back, the longer-run productivity story continues to skew heavily toward the US. Even after adjusting for measurement noise, the US still leads on intangible investment, allocative efficiency, management quality, and the ability of firms to scale – and AI adoption is now adding another structural tailwind. Put simply: the same forces that have driven decades of US outperformance remain in place, and applied AI is shaping up to be the next leg of that cycle.

Bottom-line:

The factor shakeout, the reset in Mag 7 positioning, the breadth improvement, the cooling in vol panic, the systematic de-risking already absorbed, and the early signs of real AI-driven productivity – all leave us heading into December with a cleaner starting point than we had a few weeks ago.

Professional subscribers can read much more from Goldman's Sales & Trading team here at our new Marketdesk.ai portal