Introduction: Goldman Sachs pointed out that a small part of the market's unsustainable excessive behavior may trigger a series of domino effects and cause broader turmoil.In recent years, the low volume and high concentration pattern of US stocks has increased the risk that the liquidation of a fund may sweep the entire market like a snowball.
The butterfly effect caused by the GME short-squeeze event is causing the most serious short-squeeze since the financial crisis in the US stock market. Goldman Sachs warned that if the short-squeeze continues, the entire financial market will collapse.
According to Goldman Sachs, in the past 25 years, the U.S. stock market has experienced serious short-selling many times, but none of them has been as extreme as the recent one.
In the past three months, the basket of U.S. stocks that have been most heavily shorted has risen by 98%, surpassing the skyrocketing gains in 2000 and 2009, when the basket of stocks rose 72% and 56%, respectively.
However, the overall short selling ratio of US stocks is currently at a historically low level.
At the beginning of this year, the median short position ratio of S&P 500 index stocks was only 1.5% of market capitalization, which was comparable to the level in mid-2000, and at least the lowest level in the past 25 years.
But even so, this short squeeze incident has already triggered quite a reaction in the market.
In order to cover short positions, or to make margin calls, hedge funds have to reduce their long positions.
This caused Goldman Sachs's basket of stocks most favored by hedge fund bulls to drop 4% last week.
In this regard, Goldman Sachs came to a point: a small part of the market's unsustainable excessive behavior may trigger a series of domino effects and cause wider turmoil.
Goldman Sachs analyst David Kostin pointed out that in recent years, the low volume and high concentration pattern of US stocks has increased the risk that the liquidation of a fund may sweep the entire market like a snowball.
At present, in Goldman Sachs' view, the retail holding group market can continue.Goldman Sachs believes that compared with before the peak of US stocks in 2000, the size of US household savings is currently at a high level, and it will usher in more than $1 trillion in additional financial support.
This means that retail investors have plenty of ammunition. If the short-selling market continues, then US stocks are in jeopardy.
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