Key insights
- Goldman Sachs warns that while CTA positioning currently supports global equities, their significant net long exposure, particularly in US markets ($34B in S&P 500 futures), presents an asymmetric risk. If a sustained downturn occurs, CTAs could trigger over $100 billion in selling, amplifying market weakness. This suggests a potential for increased volatility and downside pressure in the medium term, despite near-term support.
Investing.com -- Commodity trading advisors (CTAs) remain net buyers of global equities in the near term, but their current positioning could amplify market weakness if a broader downturn develops, according to Goldman Sachs.
In a note reported by Bloomberg, the bank estimates that trend-following funds currently hold approximately $93 billion in long global equity exposure after increasing positions by nearly $3 billion over the past week.
A significant portion of that exposure is concentrated in U.S. markets, with around $34 billion tied to S&P 500 futures.
According to the Bloomberg report, Goldman Sachs said North American trend signals remain well above levels that would trigger widespread mechanical selling, suggesting limited downside pressure from CTAs in the immediate future.
Over the next week, the bank expects these investors to remain net buyers under most market scenarios. Goldman projects roughly $5.5 billion of equity purchases if markets remain flat, with buying increasing to more than $7 billion in a rising market. Even in a weaker tape, selling activity would likely be limited.
However, Goldman warned that the picture changes over a longer horizon.
Looking out one month, the bank estimates CTAs could purchase around $18 billion of equities if markets remain broadly unchanged and more than $37 billion if stocks continue to rally.
By contrast, a sustained decline in equity markets could trigger more than $100 billion of selling from the group, highlighting what Goldman described as an asymmetric risk profile.