Bank of America: Commodity Trading Advisors Are Still Selling Stocks and Bonds

Investing.com - Bank of America analyst said on Monday that global financial markets will continue to face selling pressure from systematic trading strategies, as commodity trading advisors (CTAs) continue to show a selling bias in the stock and bond markets.

According to the bank’s research report, although the market has shown signs of recovery, systematic trading flows are still exerting downward pressure, and CTAs may remain a key catalyst for market volatility in the near term.

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After ending a streak of five consecutive weeks of declines last week, US stocks showed signs of a rebound. However, the market is still shrouded in uncertainty, as the heightened tensions stemming from the Iran war continue to pose a major threat to the gains Wall Street made last week.

The analysts said in the research report: “Although equities rebounded sharply, the benchmark CTA index did not show any meaningful losses on both Tuesday and Wednesday, indicating that the strategy has not been widely or maximally shorting, and reinforcing our prior view that a substantial portion of CTA assets use slower-moving models.”

The analysts noted that while faster trading models have already been heavily shorting, slower-moving models still hold neutral or residual long positions, suggesting that bearish positioning has not yet been exhausted.

Copper has been shorted; gold may follow

Last week, prices of precious metals fell as investors shifted toward riskier assets such as stocks while assessing the latest developments in the Iran war.

The report said that the trend in precious metals futures prices has continued to move lower after a recent decline. It further added that the fastest-moving CTAs may already have shorted copper and could soon also short gold.

Bank of America said that, based on its estimates, over the coming week, if the market declines, systematic strategies could sell as much as $51 billion worth of stocks, and if the market stabilizes or rises, they would only buy $1 billion.

On Sunday, Trump said in a post on his Truth Social account that if the Strait of Hormuz is not opened before Tuesday, the US will strike Iran’s power plants and bridges. “Tuesday will be the power plant day and bridge day, as Iran will combine into one.”

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