Goldman Sachs warns that the rapid rise in real interest rates is compressing risk appetite, and month-end and quarter-end pension rebalancing along with CTA selling could expose US stocks to additional supply pressure.

On September 29, Rich Privorotsky, head of Goldman Sachs' equity business, stated that despite the stock market's previous resilience, "the speed of the rate increase, especially the speed of the real rate increase, has become severe enough that the market cannot ignore it."

He emphasized that for stocks, the key is not just the absolute level of interest rates, but their speed of increase. Data shows that when rates rise rapidly by about two standard deviations, the stock market tends to react more noticeably.

Currently, the two-standard-deviation line has already been breached.

Privorotsky stated that the change in real rates over one month is already in one of the most dramatic phases since 2013. He added, "Higher interest rate volatility reduces Wall Street intermediaries' willingness and ability to take on risk." This means that when rate volatility intensifies, the market's capacity to absorb risk asset trades may decline.

From within the stock market, the pressure is not uniform. Privorotsky said that beneath the index surface, "pain" is already visible: small-cap stocks, financial stocks, and other longer-duration, more rate-sensitive sectors are under significantly greater pressure than large-cap tech stocks.

Quarter-End Fund Rebalancing Could Bring $33 Billion in Selling Pressure

Privorotsky estimates that pensions could sell a total of about $33 billion in stocks during month-end and quarter-end rebalancing. Among this, monthly rebalancing corresponds to about $11 billion in selling, while quarterly rebalancing corresponds to about $22 billion in selling.

Goldman Sachs noted that the $33 billion selling estimate ranks in the 97th percentile among all buy and sell forecasts over the past three years in absolute dollar terms; if the observation period is extended back to January 2000, it ranks in the 98th percentile. Goldman Sachs also expects pensions to buy a corresponding scale of bonds.

Privorotsky stated that quarter-end and month-end fund flows could provide support for duration assets, so he is strategically "inclined to tactically try" this direction.

Beyond pension rebalancing, systematic funds could also bring additional selling.

According to Goldman Sachs' CTA model, in a sideways market scenario, systematic managers such as CTAs could sell about $5.3 billion in Russell 2000 index futures over the coming week. Privorotsky called it "one of the largest selling estimates in the past six years."

Regarding the credit market, Privorotsky said that the credit market is beginning to show pressure, while stock volatility had not previously fully reflected this risk.

As for the subsequent market path, he believes that energy and rate trends remain key. He stated: "I can be extremely optimistic about artificial intelligence and its pace of progress, but at the current stage, unless the energy and rate issues are resolved, this is almost irrelevant."

He further stated that if oil prices pull back, it could help ease rate pressure; if rates stabilize, it could create conditions for a broader stock rally. Conversely, quarter-end pension rebalancing and CTA selling of Russell 2000 index futures could become fund flow factors that the market needs to digest.