Goldman Sachs Trader Warns of September Stock Market Challenges Amid Liquidity Concerns

A senior trader at Goldman Sachs has warned that the U.S. stock market may face significant challenges in September, citing liquidity headwinds and seasonal factors. Despite the Federal Reserve's dovish stance and compressed volatility, which have been supporting major indices, the trader highlighted that these factors may not be sufficient to mitigate the impending challenges. The trader emphasized that the market is likely to face significant headwinds as liquidity conditions tighten and seasonal patterns come into play.

The trader pointed out that the recent pullback in AI-related stocks is more of a tactical adjustment rather than a major correction. This perspective aligns with the feedback from most investors, who view the current market movements as a temporary pause rather than a significant downturn similar to those observed in the spring of 2025 or the summer of 2024. The trader's analysis suggests that the market is undergoing a period of consolidation, which is typical during times of uncertainty and changing market dynamics.

The trader's insights come at a time when the market is grappling with various uncertainties, including geopolitical tensions and economic indicators that have shown mixed signals. The trader's warning serves as a reminder for investors to remain cautious and prepared for potential volatility in the coming months. The trader's views are based on a thorough analysis of market trends and historical data, providing a comprehensive outlook on the current state of the U.S. stock market.

The trader also noted that the consumer and labor markets are showing signs of weakness, which could further exacerbate the challenges faced by the market. The trader warned that the risk of a direct slowdown in the labor market has not been fully priced in by the market, and this could lead to further market adjustments. The trader advised investors to maintain a cautious stance on stocks until September, as the market may experience a correction that could provide buying opportunities by the end of the year.

On a macro level, the rising global sovereign debt yields are becoming an increasingly important factor. The trader noted that the continued fiscal expansion is increasing the risk premium on long-term rates, and the upcoming issuance of over 1800 billion dollars in U.S. debt will put additional pressure on market liquidity. Additionally, political risks in Europe are accumulating, adding to the uncertainty in global markets.

The trader also highlighted that the recent AI boom is showing signs of slowing down, which could pose a short-term challenge for tech stocks. The trader pointed out that the short-term momentum in the AI sector has stalled due to several key factors. A paper from the Massachusetts Institute of Technology (MIT) questioning the profitability of most AI projects has garnered significant attention. Additionally, Meta's decision to slow down hiring, while not a major impact, has dampened market sentiment. The highly anticipated ChatGPT-5 has failed to deliver on its promises, and comments from OpenAI's CEO about the "bubble" in the market, along with a paper from Apple reiterating that large language models do not truly "think," have all contributed to a cooling of market enthusiasm.

Before the earnings report from NVIDIA this week, the market will be looking for more evidence to support the AI sector. While the trader remains bullish on the technology in the long term, they warned that the market may have overestimated its capacity, and a reset may be necessary before the next wave of innovation, such as quantum computing or more refined advancements, arrives.

In addition to the cooling of specific sectors, several macroeconomic factors are also contributing to the challenges faced by the market. The trader emphasized that historically, the market's performance in September tends to be poor. Liquidity is another pressing concern, as the U.S. Treasury's end-of-quarter fund withdrawals will add pressure to the market, and the upcoming auctions of 2-year, 5-year, and 7-year U.S. Treasuries will be closely watched. Furthermore, the positions held by Commodity Trading Advisor (CTA) funds are also a cause for concern. It is estimated that CTAs hold around 170 billion dollars in long positions, approaching the 22 billion dollar limit. With the 20-day volatility exceeding the 60-day volatility, if volatility continues to rise, CTAs may turn into market sellers.

On the fundamental level, signs of a cooling labor market are becoming more apparent. The trader believes there is sufficient evidence to indicate that the labor market is weakening, and the market has underestimated the risk of a direct slowdown in employment growth. Despite these challenges, the dovish stance of the Federal Reserve remains a key support for the market. The trader noted that the market has correctly interpreted the Federal Reserve's recent statements as dovish, emphasizing the weakening labor market. This has suppressed front-end real rates and allowed strategies that receive front-end rates (betting on short-term rate cuts or stability) to persist.

In this context, "shorting the dollar" has become a logical consensus in the market. However, the trader also warned that concerns about the political situation in France could disrupt this trade in the short term. In the fixed-income market, long-term rates around the world have shown little respite, with Japanese government bond yields continuing to rise, seen as a symptom of excessive fiscal expansion that refuses to abate. This steepening of the yield curve, driven by fiscal profligacy and eroding credibility, also explains why financial stocks have been able to outperform the broader market.