Goldman Sachs Tactical Flow-of-Funds: January 2025

a. The US equity market has absorbed a ton of supply in late December between hedge funds (new shorting), pension funds (rebalancing into bonds), volatility control and systematic strategies (vol spike), and retail year-end.

b. Liquidity was also challenged, and the gamma dynamic in the market quickly changed.

c. As we walk in today, the SPX futures scoreboard is up ~2%, and exposure remains short and underexposed locally to a rally from here. I would not call it FOMO but more FOMU (fear of materially underperforming benchmarks) out of the 2025 gates.

d. This is a short-term bullish tactical trading call as we move above key threshold levels and retail/PWM/401k/529 start to do their thing.

e. I will go bearish in February and look to re-establish hedges given any resets in volatility. f. GS January Flow-of-Funds Checklist below

Hedge Fund Selling - 98th percentile: Last week’s notional net selling in US Macro Products was the largest in the past year and ranks in the 98th percentile on a five-year lookback. US-listed ETF shorts increased +7.1% (+17.5% month over month) led by shorting in Large Cap Equity, Corporate Bond, Tech, and, Healthcare ETFs. I do not think that shorts will stick around for very long. Hedge Funds typically re-lever gross exposure: this starts now. GS prime brokerage gross leverage has increased in 13 out of the past 14 Januarys. We are starting the year with a large local short base.

CTA and Vol Control Projected supply may not materialize, as we are now above CTA trigger level. We are now opening above the CTA S&P short term threshold of 5972, as potential supply may not materialize. "January Effect" starts today The PWM are making the calls today after back from holidays. "what should we buy?" January is the single largest month of the year for inflows