Key Takeaways
- • Goldman Sachs derivatives strategist Brian Garrett identified seven contrarian "repair" signals after October's violent US equity swings, with the Nasdaq-100 down about 7% for the month, its second-worst month since the AI rally began in 2023.
- • Hedge fund US fundamental long/short net leverage fell to 47%, in the 7th percentile of the past year, a level historically associated with S&P 500 drawdowns of more than 20% while the index sits only about 3% below its all-time high.
- • The Philadelphia Semiconductor Index broke below its 200-day moving average after 355 consecutive sessions above it, with chip stocks down 7% to 8% on a single Friday, the third-largest one-day relative decline in more than 15 years.
- • Garrett warns deleveraging is not finished: trading desks are still selling tech, CTA systematic strategies are poised to generate new short signals, and "we just need to get through 2026 first."
- • Goldman's Peter Callahan notes Apple's 36x forward P/E is an all-time high and a record 17x premium to the S&P 500, while the options market prices the Apple earnings and midterm elections combined move at 150 basis points.
Summary
US stocks ended October with violent swings. According to Goldman Sachs, the Nasdaq-100 fell about 7% for the month, its second-worst month since the AI rally began in 2023, and entered its third correction of the year. The S&P 500 fell 0.6% for the week to close at 7,580. In his weekly note, derivatives strategist Brian Garrett laid out seven market "repair" signals, while cautioning that the real test is not over.
Chip stocks bore the brunt of the selloff. The Philadelphia Semiconductor Index broke below its 200-day moving average on Friday after 355 consecutive sessions above it, and is now testing its July low. Goldman TMT specialist Peter Callahan noted the sector's forward P/E has fallen to about 16x, touching the valuation low of this AI cycle. Earnings-driven moves were severe: NOW fell 25%, INTC fell 30%, RDDT fell 30% and FFIV fell 20% in a single day, with several stocks posting their worst post-earnings performances on record.
Garrett's positioning argument centers on hedge fund exposure. Hedge funds were net buyers of US equities for the first time in four weeks, but 73% of that buying came from macro products and was mainly short covering, and the Magnificent Seven saw net selling on four of the past five sessions. Still, US fundamental long/short net leverage at 47% corresponds, per Goldman's regression against S&P 500 drawdowns, to historical drawdowns above 20%. Market internals also stood out: 406 S&P 500 constituents closed higher on one Thursday, yet the index closed lower, a configuration Garrett describes as almost unprecedented.
Valuation and volatility data complete the picture. The S&P 500 is up 10.7% year to date, with forward P/E near 19x, the lowest of 2026. Goldman noted defensive factors are expensive, with dividend yield at the 90th percentile of the past decade. Implied volatility on the Nasdaq-100 jumped nearly 2 points in one session, and VVIX reached an intraday high of 124 before retreating. Garrett also cited the direction of volatility flipping, with down-day amplitude again exceeding up-day amplitude.
This week's catalysts include Apple earnings on Monday, AMD and ANET on Tuesday, midterm elections on Tuesday, Treasury refunding on Wednesday and nonfarm payrolls on Friday. The S&P 500's implied move for the week is 1.84%. Garrett expects no index-wide event from the midterms but highlighted a thematic pair trade: long renewable energy and grid names against downside protection on hyperscale data centers. For investors, Goldman's core message is that positioning and sentiment point toward repair, but fund flows and systematic selling have yet to clear, and the gap between the two is the main near-term risk for US stocks.
Chip stocks bore the brunt of the selloff. The Philadelphia Semiconductor Index broke below its 200-day moving average on Friday after 355 consecutive sessions above it, and is now testing its July low. Goldman TMT specialist Peter Callahan noted the sector's forward P/E has fallen to about 16x, touching the valuation low of this AI cycle. Earnings-driven moves were severe: NOW fell 25%, INTC fell 30%, RDDT fell 30% and FFIV fell 20% in a single day, with several stocks posting their worst post-earnings performances on record.
Garrett's positioning argument centers on hedge fund exposure. Hedge funds were net buyers of US equities for the first time in four weeks, but 73% of that buying came from macro products and was mainly short covering, and the Magnificent Seven saw net selling on four of the past five sessions. Still, US fundamental long/short net leverage at 47% corresponds, per Goldman's regression against S&P 500 drawdowns, to historical drawdowns above 20%. Market internals also stood out: 406 S&P 500 constituents closed higher on one Thursday, yet the index closed lower, a configuration Garrett describes as almost unprecedented.
Valuation and volatility data complete the picture. The S&P 500 is up 10.7% year to date, with forward P/E near 19x, the lowest of 2026. Goldman noted defensive factors are expensive, with dividend yield at the 90th percentile of the past decade. Implied volatility on the Nasdaq-100 jumped nearly 2 points in one session, and VVIX reached an intraday high of 124 before retreating. Garrett also cited the direction of volatility flipping, with down-day amplitude again exceeding up-day amplitude.
This week's catalysts include Apple earnings on Monday, AMD and ANET on Tuesday, midterm elections on Tuesday, Treasury refunding on Wednesday and nonfarm payrolls on Friday. The S&P 500's implied move for the week is 1.84%. Garrett expects no index-wide event from the midterms but highlighted a thematic pair trade: long renewable energy and grid names against downside protection on hyperscale data centers. For investors, Goldman's core message is that positioning and sentiment point toward repair, but fund flows and systematic selling have yet to clear, and the gap between the two is the main near-term risk for US stocks.
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