By Carolina Mandl
NEW YORK (Reuters) – Trend-following hedge funds could sell between $20 billion and $42 billion in U.S. equities over the next month if the stock market continues to retreat, a Goldman Sachs note shows.
Also known as CTAs (commodity trading advisers), trend-following hedge funds trade systematically to catch big trends in markets.
Goldman Sachs said an S&P 500 below 5,135 points \”would flip short-term trend from more positive to negative\” among trend-following hedge funds, triggering equity sales.
A fall of 3.2% in the S&P over the next month would force CTAs to sell around $20 billion in companies in the index and over $200 billion in global equities, the bank said in a note published on Friday. If the S&P further retreated, sales in the S&P could total $42 billion.
The S&P is down roughly 2.6% since April 11 amid stronger-than-expected U.S. prices and sales and renewed geopolitical concerns.
Overall, last week hedge funds on net sold U.S. equities for a second straight week, mostly after the a strong consumer price index surprised investors on Wednesday, casting further doubt on whether the Federal Reserve will start cutting interest rates soon.
In a separate note, Goldman said hedge funds were net buyers of Chinese equities for the third straight week and net sellers of U.S. energy stocks.
