US stocks perform the third worst this year! Goldman Sachs: Market collapse is not uncommon, with two reasons

US stocks opened black, why can't they escape the September curse?

On September 3, Eastern Time, the S&P 500 fell by 2.12%, marking the third time the S&P 500 index has fallen by more than 2% since December 2022, and it was the third worst trading day of the year (3% drop on August 5, 2.31% drop on July 24).

The Nasdaq and technology stocks suffered even more severe selling, with tech stocks plummeting by 326 basis points and the semiconductor index falling by over 7.1%, marking the largest single-day drop since the pandemic collapse in March 2020.

Goldman Sachs analysts pointed out that there are two reasons for the US stock market decline: disappointing ISM data and lingering concerns in the market about the global stock market sell-off on August 5.

Poor Performance of US ISM Data

On Tuesday, September 3, the data released by ISM showed that overall manufacturing activity in the US remained weak in August. The ISM manufacturing index was 47.2, below the expected 47.5, the new orders index dropped by 2.8 percentage points to 44.6, the production index dropped by 1.1 percentage points to 44.8, and the inventory index surged by 5.8 percentage points to 50.3.

Goldman Sachs believes that there are concerns in the market about the Fed directly cutting interest rates by 50 basis points. Data showing weakness in the US economy is unfavorable for the US stock market until the Fed announces a 25 basis point rate cut, eliminating concerns about panic rate cuts. Meanwhile, Goldman traders John Flood and Andrew Kobierski pointed out five areas to watch in the US stock market on September 3.

1. Last Friday, the S&P 500 index was artificially driven up, with $10.5 billion in buy orders appearing at the close, the second largest scale in two years. However, the end of August should have been a relatively calm period for pension funds. Clearly, in the context of liquidity stress, there are still clear traces of technical or systemic trading in the market.

2. Data showing weakness in the US economy is currently bad news for the stock market. The market hopes for a gradual rate cut by the Fed, starting with a 25 basis point cut. If discussions about a 50 basis point cut are brought up now, the stock market will panic 3. September curse. According to historical data, the stock market tends to perform poorly seasonally in September. Historically, the second half of September has been the worst two-week trading period of the year for the S&P 500 index since 1950.

4. Block trading window opens. According to Goldman Sachs, Wall Street is preparing to purchase block notes worth over $5 billion.

5. The two most overvalued trading days in the U.S. stock market are the first trading day after New Year's Day and the first trading day after Labor Day. On these two days, market sentiment is high, but trading activity, investor confidence, and stock liquidity are low.

Market still concerned about the major sell-off on August 5th

On August 5th, global markets were dominated by economic recession concerns, triggering panic and a "Black Monday." The Dow fell over 1,000 points at the close, the S&P plummeted 4.2%, the Nasdaq dropped 6.4%, and the "fear index" VIX surged 181% to 65.73, reaching its highest level since the March 2020 pandemic.

In this panic sell-off, CTA funds were one of the main culprits for the U.S. stock decline, as they were buyers in all situations. However, the situation has changed now. According to Goldman Sachs analyst Matt Kaplan, CTAs are currently sellers in all scenarios.

Specifically, CTAs net bought $25 billion of S&P 500 stocks in August, with current holdings reaching $34.9 billion. However, Goldman Sachs estimates that CTAs are inclined to sell S&P 500 stocks in all scenarios now: if the market remains flat in the next week, CTAs are expected to sell $1 billion; if the market remains flat next month, CTAs are expected to sell $6 billion; and if the market decline accelerates, the scale of selling will be even larger.

Another factor that supported the stock market during the market plunge on August 5th has also almost disappeared. Starting from September 13th, 50% of companies will enter a blackout period for buybacks, and the daily buybacks of $5-10 billion are gradually fading away.

Was the sell-off on September 3rd within normal range?

Goldman Sachs believes that the significant drop in U.S. stocks on September 3rd is still within the normal range for two reasons:

Firstly, there was no panic selling yesterday. In fact, the selling yesterday was not as intense as expected. According to Goldman Sachs' analysis, the overall participation rate in trading activity in the U.S. stock market yesterday was only around 40%.

Secondly, it is a presidential election year, so the sell-off after Labor Day is completely normal. Goldman Sachs stated that in presidential election years, the U.S. stock market typically peaks around Labor Day, then experiences a significant decline before the election, and reaches new highs before the end of the year