Momentum reversal in technology stocks triggers deleveraging, but has not yet evolved into broad-based risk aversion

Overview

This report tracks changes in global cross-asset and technology-sector positioning. The core conclusion is that technology stocks, particularly AI- and semiconductor-related trades, are undergoing momentum-driven deleveraging: long selling in global information technology stocks has been significant, retail financing and leveraged ETF assets have declined from elevated levels, and options trading has become more concentrated and shorter-dated. However, the report does not interpret this as a broad retreat from risk assets, because equity fund flows remain resilient, fixed-income fund flows have been more dominant year to date, and the risk appetite indicator remains elevated.

Core views

First, technology- and AI-related trades had previously added risk at a rapid pace and with high concentration, making the pullback look more like the unwinding of crowded trades. Second, single-stock implied volatility has risen while index implied correlation remains low, indicating greater dispersion within the market, with pressure concentrated in certain AI capital expenditure and semiconductor stocks. Third, retail and leveraged participation are cooling, with financing balances in South Korea and Japan and technology-related leveraged ETF assets both declining. Fourth, cross-asset markets are also being influenced by central bank meetings, repricing of policy expectations, and foreign-exchange intervention: speculative net long positioning in the U.S. dollar has increased, downside skew in long-duration U.S. Treasury ETFs has risen, and sentiment in yen options rebounded after intervention.

Analysis framework

The report cross-validates changes in market risk appetite using positioning, sentiment, fund flows, options, futures, and leverage indicators, focusing on crowded technology trades, global fund flows, CFTC futures positioning, options skew, CTA sensitivity, risk parity allocations, and hedge fund leverage.

Methodology notes

• Positioning and sentimentGoldman Sachs sentiment and positioning indicator

  Uses composite positioning and sentiment indicators to assess the degree of crowding in market risk appetite.

  The report shows that the indicator has turned more negative and is around the 53rd percentile, suggesting that sentiment is no longer extremely optimistic but is not deeply pessimistic either.

• Fund flowsEPFR global fund flows

  Tracks weekly and monthly fund flows into global mutual funds and ETFs.

  The report uses this data to compare flows into equities, fixed income, money markets, regional equities, and risk and safe-haven assets, noting that equity flows remain resilient but fixed-income flows have been more dominant year to date.

• Derivatives positioningCFTC futures positioning and options skew

  Measures investors' directional positioning and demand for tail protection through net futures positions, call/put ratios, and risk reversals.

  The report observes rising speculative net long positioning in the U.S. dollar, higher downside skew in long-duration U.S. Treasury ETFs after the FOMC, and a rebound in yen risk reversals after foreign-exchange intervention.

• Leverage and systematic strategiesMonitoring of risk parity, CTAs, and hedge fund leverage

  Observes whether systematic strategies and leveraged investors are amplifying market volatility.

  The report notes that hedge fund gross leverage has given back approximately half of its year-to-date increase, while net leverage has declined year to date; short exposure to VIX futures has also been reduced to more neutral levels.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Global technology stocks

  Core asset under observation

  Strengths

  Long-term AI capital expenditure and semiconductor themes continue to attract investor attention.

  Weaknesses

  Trading is crowded, with high participation in short-dated options and leveraged products, making the segment vulnerable during momentum reversals.

  Comparison

  Compared with the broader equity market, deleveraging pressure is more concentrated in technology stocks.

  Risks

  Further long liquidation, rising implied volatility, and continued withdrawal by retail and leveraged funds.

• Semiconductor stocks

  Important vehicle for AI trades

  Strengths

  Previously received strong retail and thematic fund inflows.

  Weaknesses

  The report states that U.S. retail purchases of individual semiconductor stocks have slowed and that some outflows have emerged.

  Comparison

  Compared with broader technology, semiconductors have more direct exposure to AI capital expenditure expectations.

  Risks

  Cooling earnings expectations or the AI capital expenditure narrative could trigger simultaneous valuation and positioning adjustments.

• Fixed income

  Leading direction of cross-asset fund flows

  Strengths

  Fund flows have been relatively stronger year to date.

  Weaknesses

  Repricing of policy expectations has increased demand for protection in long-duration U.S. Treasury options.

  Comparison

  Compared with equities, fixed-income flows are stronger but more sensitive to central bank signals.

  Risks

  Post-FOMC interest-rate volatility and renewed repricing of long-end yields.

• U.S. dollar and yen

  Foreign-exchange assets influenced by policy and intervention

  Strengths

  Speculative net long positioning in the U.S. dollar has increased significantly, while yen options sentiment has rebounded after intervention.

  Weaknesses

  Non-commercial net futures positioning in the yen remains negative.

  Comparison

  Changes in foreign-exchange positioning reflect policy expectations and intervention more than pure risk appetite.

  Risks

  Changes in central bank communication, the persistence of foreign-exchange intervention, and volatility in interest-rate differential expectations.

Key data

• Sentiment and positioning indicatorApproximately the 53rd percentileThe report states that the indicator has turned more negative.
• Risk appetite indicatorApproximately 0.8It remains elevated, indicating that the environment is not yet one of broad-based risk aversion.
• NAAIM active manager U.S. equity positioning79.7Active managers' U.S. equity positioning has declined moderately.
• Long selling in global information technology stocksLargest one-week long selling since January 2021; second-largest two-day long selling in the past decadeBased on GS Prime Brokerage data.
• Hedge fund leverageGross leverage has given back approximately half of its year-to-date increase, while net leverage has declined year to dateThe report regards this as evidence of substantive deleveraging.
• EPFR coverageMore than $25 trillion in AuMThe report appendix states that EPFR fund flow data covers global mutual funds and ETFs.

Impact & implications

The implication for portfolios is that short-term volatility risk has increased for technology- and AI-related exposures, particularly crowded long positions expressed through short-dated options, leveraged ETFs, and financing trades, which are more vulnerable to momentum reversals. However, because fund flows and risk appetite do not yet indicate a broad retreat, the pressure is more likely to appear as de-crowding within sectors and at the individual-stock level rather than a synchronized collapse in global risk assets.

Risks

• Further de-crowding in AI and semiconductor trades could increase volatility in technology stocks.
• Short-dated options and leveraged ETP positions could amplify intraday or short-term market volatility.
• Synchronized deleveraging by hedge funds, retail financing, and systematic strategies could create liquidity pressure.
• Repricing of central bank policy expectations could increase volatility in interest rates, foreign exchange, and long-duration assets.
• If equity fund flows shift from resilience to sustained outflows, localized deleveraging could escalate into broader risk aversion.

What to watch

• Whether the Goldman Sachs sentiment and positioning indicator continues to fall below the neutral range.
• Whether long selling in global information technology stocks develops from a one-week event into a persistent trend.
• Whether financing balances in South Korea and Japan and technology-related leveraged ETF assets continue to decline.
• Whether U.S. retail fund flows into individual semiconductor stocks turn positive again.
• Leveraged fund positioning in VIX futures, hedge fund net and gross leverage, and equity options call/put ratios.
• Downside skew in long-duration U.S. Treasury ETFs after the FOMC, speculative U.S. dollar positioning, and yen risk reversals.