"Quick money" exhibits extreme caution, instead planting the seeds for a rally: Is the S&P 500 aiming for 8,000 points?

According to Zhihui Finance APP, in recent months, investors have adopted a defensive stance in response to market uncertainty. However, as caution becomes the consensus, a counterintuitive situation is emerging: the market's true "pain trade" is actually an upward move.

While overall positioning remains net long, the directional risk exposure of "fast money" is at its lowest level since the "Liberation Day" in April 2025. Data from Goldman Sachs Prime Brokerage shows that net leverage among US long-short strategy funds dropped to 47.6% last week, with a long-short ratio slightly below 1.6. Both of these metrics are at their lowest levels in the past year. Although total exposure has risen slightly, it is still only at the 19th percentile historically. Overall, the increase in short and hedging positions has outpaced that in long positions.

Bobby Molavi, Head of Execution Services for Goldman Sachs EMEA, noted that current positioning is "much cleaner than before." He believes some froth has been squeezed out and retail chasing seems to have diminished. “I wouldn’t say people are underinvested, but compared to June, positions are much less crowded. Moreover, the August rotation across regions/sectors and stock performance seems to have contributed some diversification.”

The underlying message here is worth noting. Ahead of major August events like the Jackson Hole global central bank symposium and Nvidia’s earnings, hedge funds were generally unwilling to add directional exposure. Now that these key events are over with mixed results—Nvidia’s blowout earnings reassured AI trade confidence, but monetary policy has been repriced in a more hawkish direction. This week, the US 10-year Treasury yield briefly broke above 4.8%, putting some pressure on equities.

The next two weeks are a critical window, with the likelihood of an interest rate hike at the Fed’s September 15-16 meeting approaching 70%. US non-farm payroll and inflation data may either reinforce the current narrative or entirely reverse market sentiment. But against the current backdrop of light positioning, if the market rebounds, fund managers may be forced to chase the rally.

Volatility Spikes Are No Longer a Warning Signal, but May Indicate a Buying Opportunity

Surprisingly, a sharp spike in volatility may no longer be a negative. “Rising markets accompanied by increasing volatility” has been a theme in this year’s market commentary, implying that, contrary to expectations, rallies have brought about greater, not lesser, volatility.

The data backs up this deeper logic: volatility is no longer acting as an alarm, but as a buying signal. The specific test: select around 150 equity measures, covering benchmark indexes, US and European sector indices, as well as thematic indices from AI to defense, and observe what happens when the realized monthly volatility of any of these measures suddenly jumps to 1.5 times its one-year average.

Volatility Spikes Are Positively Correlated With Strong Performance

The result for 2026: outstanding performance. On average, measures triggering this signal outperformed peers by more than 5 percentage points over the subsequent three months, with about two-thirds of cases posting positive returns. This is the best showing for this signal in at least a decade.

Notably, the sectors triggering this signal have also defined this year’s main trend. Storage chips, optical communication, agentic AI, and data centers all delivered excess gains between 30% and 80% after volatility spikes, with semiconductors and bitcoin concept stocks close behind. Meanwhile, utilities, energy, real estate, and value stocks also experienced rising volatility but failed to deliver excess returns due to lack of capital inflows. This suggests that rising volatility only becomes a boon when flows are already inclined toward these areas.

It’s worth noting that about half of this year’s volatility events were concentrated around the late-March sell-off and the subsequent recovery. In other words, a substantial portion of excess returns actually reflected “who rebounded most strongly during the big drop.” Volatility spikes triggered by price declines produced even better performance than those triggered by rallies. This pattern resembles both high-beta bargain hunting and a scenario where “volatility attracts capital.”

However, the same test also reminds us: this pattern is conditional, not structural. In 2021, the identical signal actually pointed to selling—high volatility names underperformed by 5 percentage points with a hit rate below 30%, and a bear market followed a year later. Volatility can be a bullish signal, but can also suddenly flip negative. Still, with “fast money” positions widely underweight, bottom-fishing becomes more likely.

Technical Picture: S&P 500 Trend Remains Up, but Momentum Fades

In the short term, the technical picture remains positive. Bank of America technical analyst Paul Ciana noted the S&P 500 continues to confirm August’s breakout. However, momentum is fading; both the RSI and MACD have failed to confirm recent highs. Seasonal headwinds, US election uncertainties, and rising yields all suggest that the rally is entering a more challenging phase, with volatility likely to surge in September-October before a potential new rally in November-December.

S&P 500 Sending Positive Technical Signals

Ciana stated: “As long as the S&P 500 holds above 7500, the price trend remains intact, though higher yields increase the risk of consolidation rather than a rapid move higher.” He puts the target range at 8000, 8234, and possibly even 8541. “As long as support at 7500-7504 holds, the trend remains tilted upward.”