Market Extra: The latest threat to U.S. stocks: systematic trend following funds are cutting their exposure to the market

by | Oct 4, 2023 | Stock Market

As if the U.S. stock market didn’t have enough problems to contend with, here’s one more: systematic trend-following funds are cutting their exposure, potentially piling more downward pressure on markets in the coming weeks. Goldman analysts estimate that commodity trading advisors, a type of trend-following hedge fund typically active in futures markets, dumped roughly $40 billion in exposure to U.S. stocks last week. That’s the most rapid pace of CTA selling on record, according to Goldman’s data.


Fortunately, the Goldman team expects selling pressure from systematic funds to abate in the coming days, but not everybody agrees. To wit, a team at UBS said in a note published late last week and recently obtained by MarketWatch that they expect another $20 billion to $30 billion in CTA selling over the coming two weeks. According to their data, that would leave systematic funds net short stocks for the first time since November of last year. “CTAs are now back to neutral on stocks, and are more likely to sell than buy from here,” the UBS team said. The S&P 500 fell 3.6% during the quarter ended in September, its first quarterly decline in a year. And stocks have been sliding since, with the index down another 0.5% since the start of October. All told, the S&P 500
has fallen nearly 7.5% since the index logged its highest close of the year on July 31, when it finished at 4,588.96. By comparison, the index closed at 4,263.75 on Wednesday after rising 0.8%, its biggest daily advance in three weeks, according to FactSet data. The Nasdaq Composite
rose 1.4% Wednesday to finish at 13,236.01, while the Dow Jones Industrial Average
rose 127.17 points, or 0.4%, to 33,129.55 as easing Treasury yields were said to have offered stocks a reprieve. Rising Treasury bond yields, particularl …

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