For investors searching for the next catalyst to drive U.S. stocks higher, Goldman Sachs’ trading team brings an encouraging signal: algorithm-driven funds are poised to ramp up buying at a record pace. Following the recent sell-off triggered by tensions in Iran, systematic investors reduced their exposure to multi-year lows. Now, they are preparing to pour a record amount of capital back into the U.S. stock market.
According to data from Goldman Sachs’ trading desk, commodity trading advisors (CTAs), which primarily follow trend-based strategies, have sold approximately $48 billion worth of S&P 500 futures over the past month. However, this trend is about to reverse. Goldman’s models indicate that regardless of future market direction, CTAs will become net buyers of U.S. equities over the next week and month. Strategist Paul Leyzerovich noted that even if the market moves sideways, demand could reach around $45 billion in the coming week, making it one of the largest inflows on record. With the recent market rebound, Goldman’s thresholds for short-, medium-, and long-term demand have all turned positive, further reinforcing the case for renewed buying.
Investors are closely monitoring these flows, as such funds often adjust positions rapidly based on trend and volatility signals, thereby amplifying market swings. Amid geopolitical tensions, short-term funds sold about $240 billion in global equities over the past month. Data from Barclays shows that equity exposure for volatility-controlled funds has fallen from 95% at the start of the year to around 52%, while CTA positions have dropped to their lowest levels since May. Dan Ghali, Senior Commodity Strategist at TD Securities, noted that sharp price swings across various global asset classes have disrupted trend signals, intensifying liquidation and algorithmic selling.
The market environment is now improving. Boosted by progress in U.S.-Iran negotiations and easing concerns over energy prices, U.S. stocks are on track for their strongest weekly gain since late November. The S&P 500 has broken above its 50-day moving average, market breadth has strengthened, and volatility indicators have retreated, with the CBOE VIX index falling to around 20. Scott Rubner of Citadel Securities pointed out that the normalization of cross-asset volatility is key, as a sustained decline in volatility is typically a prerequisite for systematic funds to increase risk.
The buying activity of these quantitative funds may further prompt discretionary investors to chase the rally. Alex Altmann, Head of Global Equity Tactical Strategy at Barclays, said that in similar past periods, discretionary investors often found themselves forced to re-take risk at higher price levels than current ones, precisely because systematic investors had already “gotten ahead.”
