Goldman Sachs analysts signaled further potential downside in global equity markets based on their momentum models.
According to a note from Goldman, “more than 70% of our modeled trend signals are more negative across markets and tenor horizons,” a significant increase from 38% the previous week.
The note highlights that equity markets have seen some stabilization and a rebound, but the overall trend remains bearish.
Goldman Sachs estimates that Commodity Trading Advisors (CTAs) and trend-following strategies have significantly reduced their long positions in global equities. The CTA/trend following length has been cut from around $150 billion in mid-July to $90 billion, with expectations for further reductions.
“Short trend is now more negative in 100% of the markets we track, and medium trend more negative in 80% or more,” Goldman Sachs states, indicating broad-based selling pressure.
They note that in the past month, CTAs have sold approximately $41 billion of global equities, with $32 billion of that occurring in the last week alone.
Goldman Sachs adds that “simulated selling has been widespread throughout nearly all of the modeled products,” with the (SPX) and among the most heavily sold markets.
The SPX is a significant market due to its weight in portfolios, while Topix has seen all three of its short, medium, and long-term trend signals turn negative.
The investment bank also expects additional selling from risk-parity style and volatility control strategies, estimating another $30 billion in equity sales over the next week.
The note concludes that while these systematic strategies are driving the current trend, “total institutional length in US index futures” remains historically high, indicating that there could be more room for selling if the negative trend persists.