Trend-following systematic funds turned net short on US stocks for the first time in more than a year, leaving Wall Street to pore over spreadsheets to find how big a rally is needed to lure them back as buyers.
These commodity trading advisers, or CTAs — which take their cues from the stock market direction rather than fundamental factors — cut their exposure to the S&P 500 Index to the lowest level since 2023, data from Goldman Sachs Group Inc.'s trading desk show.
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The shift followed a rout in US stocks on concerns over the uncertain macroeconomic backdrop driven by President Donald Trump's tariff and trade-war threats. While the equities benchmark quickly clawed itself out of a correction, the rebound has so far been shallow and market bulls are looking for the return of CTA buyers to amplify any gains.
“Continued movement to the upside will bring the systematic cohort in,” Goldman traders wrote in a note to clients Thursday. A sizeable rally would unlock almost $70 billion of US equity buying, but we are not there yet, they added.
They expect CTAs will turn into short-term buyers when the index reaches 5,870, or around 4% above Friday levels. The index currently sits at around 5,636, some 8% below its Feb. 19 all-time high.
Other banks waiting for the group's return are citing similar levels.
“The attempted recovery in stock index prices is missing one major cohort: systematic funds. And TD Securities estimates that CTAs won't be contributing to the market rally in the S&P 500 until it gains at least 4% from current levels,” said Daniel Ghali, senior strategist at TD Securities.
At Nomura Securities, cross-asset strategist Charlie McElligott calculates that the S&P 500 needs to reach 6,014 in order for CTAs to get back to an overall long signal. That implies an almost 7% move higher for S&P 500.
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