Goldman Sachs' Latest US Market Weekly Report: Retail Trading Takes a Step Back, Household Equity Demand Takes Two Steps Forward This week, US stocks experienced a sharp deleveraging by hedge funds. Goldman Sachs' hedge fund VIP long/short basket fell 4% in a single day, the second-worst drop in the past decade, only surpassed by the DeepSeek shock in January 2025 and the pandemic sell-off in March 2020. Although the overall leverage ratio of hedge funds has declined, it is still above the 90th percentile of the past five years, indicating that the risk of market crowding has been released, but the pressure of forced liquidation has not completely disappeared. Retail trading activity has decreased, but this does not mean that household funds are withdrawing from US stocks. The proportion of retail trading in total US stock trading volume has fallen from 15% at the end of 2025 to 9%, a decrease of about 20% since the summer. However, some funds are shifting to leveraged ETFs, options, and prediction markets. Recent buying activity in leveraged ETFs such as TQQQ and SOXL indicates that retail risk appetite has not disappeared, but rather trading methods have changed. Supporting US stocks is the larger-scale equity demand from the household sector. US households directly hold 42% of US stocks, and the actual percentage is even higher when retirement accounts, funds, and ETFs are considered. Federal Reserve data shows that US households made net purchases of $840 billion in stocks in the first half of 2026, far exceeding the $175 billion net stock supply from the corporate sector. Meanwhile, US equity funds have seen inflows of approximately $350 billion this year, indicating robust demand. However, a crucial detail is that the top 10% of US households hold 87% of their household equity assets. Therefore, whether high-net-worth households continue to increase their equity allocations will determine the medium-term direction of the market. Currently, stocks account for 55% of US household financial assets, a historical high. Goldman Sachs believes that the net supply of US stocks may see its largest increase since 2000 in 2027, and whether household demand can continue to absorb this new supply will be a key variable in determining the US stock market's trajectory. A stable job market and a moderate decline in interest rates are conducive to maintaining capital inflows. Conversely, if AI impacts corporate earnings expectations or US Treasury yields rise again, household equity allocations may reverse. Despite the recent sharp market correction, Goldman Sachs remains optimistic about the medium-term outlook for US stocks. The S&P 500's current 12-month price-to-earnings ratio is approximately 19. Goldman Sachs projects EPS of $375 in 2026, further increasing to $415 in 2027. The year-end target for the S&P 500 is 8,000 points, and the 12-month target is 8,700 points, representing an upside of approximately 14% from current levels. Meanwhile, it projects the US 10-year Treasury yield to fall to 4.5% over the next 12 months, gold to rise to $5,140, and Brent crude oil to fall to $75. (Institutional views are recorded below.)