The stomach churning volatility that rocked the U.S. stock market during late August, at one point taking the Dow Jones Industrial Average (NYSE:DJI) down 1,000 + points mid-day, did a number on big money investors. For the first time ever, institutional and leveraged investors ratcheted down their bullish positions on S&P 500 (NYSE:SPY) futures, according to Goldman Sachs (NYSE:GS).
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David Kostin, Chief U.S. Equity Strategist at Goldman Sachs, and his team crunched the numbers and in a report noted that “the combination of a modest increase in gross long positions coupled with a larger increase in short positions means the net long positions have been reduced.”
That sentiment suggests stocks may decline in the future. This is the first time the data has registered such a reading since the U.S. Commodity Futures Trading Commission (CFTC) began publishing the stats in 2006.
However this is not necessarily bad news, in fact it may be just the opposite, a signal investors have become too negative. Goldman, which also included its proprietary Sentiment Indicator, notes that this light positioning can suggest near-term upside to the S&P 500, a contrarian viewpoint to the data.
The S&P 500 is down 2% since early July through Wednesday but is attempting a clawback from the August 24 low. So far in the 4Q, the index has gained about 5%.
Vanguard CEO Bill McNabb, during an appearance on FOX Business Network’s Mornings with Maria, discussed the impact volatility has had on his main street clients, which represent $3 trillion in assets.
“What you are seeing and its really played out all year is a lot more volatility in the markets and that tends to make investors nervous.”
Still McNabb noted that investors took the market swings in stride. “We didn’t see any changes in terms of cash flow patterns or investing patterns and we didn’t see a lot of transactions moving from one asset category to another, at least our investors ignored the news.”