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.
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. 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 SPX 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.
Rising bond yields can increase borrowing costs for corporations, potentially putting pressure on economic growth, while also making U.S. equity valuations less appealing to investors by comparison.
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