Goldman Sachs Research Report Analysis: US Stocks to Remain Range-Bound in August, Buybacks Provide Floor Despite Capital Outflow

By: Rita

US stocks in July experienced a rare reversal in momentum and positioning structure, with deleveraging nearing its end. The Goldman Sachs flow team released a research report on July 29 judging that US stocks in August are unlikely to have a trending market, mainly characterized by range-bound oscillations. Geopolitics, Federal Reserve decisions, and earnings season will continue to disturb the market, with volatility remaining high. After deleveraging, there is room for the index to rise, but it needs to digest previous volatility before large-scale position building can begin.

Leverage Remains High, Tech Stocks Are the Core of This Adjustment

Goldman Sachs prime brokerage data shows that the total leverage ratio of global accounts is at the 93rd percentile of the 5-year lookback and the 65th percentile of the 1-year lookback. Several weeks of concentrated reduction only temporarily relieved leverage pressure; the overall level remains high, and the information technology sector bore the greatest selling pressure.

Last Friday, the scale of long selling in global tech stocks hit a peak since September 2024 and was one of the largest single-day sell-offs in nearly five years. On that day, global accounts had net selling, with a ratio of long selling to short covering of 1.4 to 1. Deleveraging occurred synchronously across global regions, but structures differed. The US and emerging Asia were dominated by long reduction, while developed Asia and Europe were dominated by short covering. All 11 US stock sectors contracted risk positions synchronously, with the tech sector leading the decline.

In July, net inflows into US stock funds were USD 34 billion, the third highest for July in nearly 20 years. Goldman Sachs judges that inflows in August will gradually slow down, and related signals have already appeared. Current position pressure has basically been cleared, and the market has the conditions to shift to fundamental pricing. However, before incremental capital enters the market centrally, previous disturbances still need to be digested.

Buybacks Are the Core Support in August, Seasonal Capital Outflows Form Pressure

Historically, August ties with May as the month with the most severe capital outflows from equity funds and ETFs. Geopolitical risks, energy prices, and policy uncertainty jointly suppress buyer risk appetite. Before the midterm elections, mutual funds tend to hold cash waiting for the election results. Overseas investors have similar operations, tending to moderately reduce US stock holdings one month before the general election. Incremental capital to push up the index in the short term is limited.

Buybacks are the most certain buying support in August. Currently, about 31% of S&P 500 constituents are in the buyback window period, expected to rise to 53% by the end of the month. By mid-August, over 90% of companies will end the earnings quiet period. After the quiet period is lifted, buyback demand will be released centrally, providing continuous buying support for the market.

Dealers hold S&P 500 positive gamma positions, continuously increasing upside long exposure and reducing downside short exposure. This positioning structure forms pressure on the index's upside space, reinforcing the range-bound oscillation pattern. The gamma mechanism amplifies volatility during declines, but Goldman Sachs judges that the depth of downside space is relatively limited.

Quantitative Capital Flows Show Asymmetric Downside

The S&P 500 has fallen below the short-term trigger level of 7453 points. Further exploration of the index will trigger concentrated selling by CTA strategies. Goldman Sachs estimates that systematic strategies hold about USD 196.3 billion in US stock long positions, with a three-year position percentile of 48 and a CTA position percentile of 44, overall at a neutral level.

Market liquidity will gradually tighten in August, and capital flows show asymmetric downside characteristics. The amplification of quantitative selling scale will exacerbate the impact on the market and push up short-term volatility.

Goldman Sachs Recommends Reverse Dispersion and IWM Put Options

For the oscillating environment in August, Goldman Sachs gives three structural trading directions.

Reverse dispersion strategy: Short S&P 500 top 50 constituents 2.5x cap volatility swaps, simultaneously long S&P 500 index same structure volatility swaps. The core logic is to long market correlation, earning the spread from individual stock volatility declining and index volatility rising.

IWM three-month put options: The Russell 2000 Index has historically performed weakly in the first two weeks of August. Coupled with current monetary and geopolitical uncertainty, the weakness may continue. The index has outperformed the broader market this year and has room for correction. IWM one-month 25 delta put options, with 1-year and 5-year percentiles at 48 and 46 respectively, are suitable as hedging tools for rate hike scenarios.

Retail hot stock short-term options: Since July, trading activity in the retail sector has been lower than the five-year average, with the ratio of daily trading volume to market cap more than 3% lower than the 2021 to 2025 average. Goldman Sachs will track changes in this gap in August and explore structural opportunities on the options side.

This round of deleveraging adjustment is nearing its end, but aftershocks have not fully subsided. The core support for the market in August comes from corporate buybacks, while suppressing factors include seasonal capital outflows, quantitative selling, and conservative institutional positions. Index directional return space is limited; volatility arbitrage and structural hedging are trading paths better suited to this month's environment.

Disclaimer

This article is a compilation and interpretation by TechFlow Research of a third-party broker research report (Goldman Sachs, July 29, 2026), combined with public market information. The ratings, target prices, earnings forecasts, and related judgments cited in the text are the views of the broker's analysts, representing only their institution's stance, not representing the views of TechFlow Research, nor constituting any investment advice.

The market has risks, decisions must be independent. This article should not be used as a basis for buying or selling any securities.