Bank of America Analysts: CTAs Still Bullish on Equities Despite Recent Market Gains
In a recent report, analysts at Bank of America have highlighted that trend-following funds, known as CTAs, are still looking to buy equities despite the recent market gains. This comes amid expectations for the Federal Reserve to pivot towards rate cuts, creating opportunities for further buying from systematic traders in the near term.
The early August market slump has triggered buying signals for shorter-term CTAs, particularly commodity trading advisors who systematically follow price trends across various asset classes. These CTAs are likely to increase their bullish bets on stocks, with a focus on the S&P 500, NASDAQ-100, and EURO STOXX 50.
According to Bank of America's model, CTAs are currently long on the S&P 500 with a trend strength of 29%, which could potentially increase to 36-39% in the next 5 trading sessions. Similarly, for the NASDAQ-100, CTAs are long with a 6% trend strength, expected to rise to 21-22% under favorable conditions in the coming week.
The bullish sentiment towards stocks is fueled by expectations of Fed policy adjustments, as Federal Reserve Chairman Jerome Powell has indicated a potential rate cut in September. This has led to about 70% of traders anticipating a rate cut next month.
In conclusion, the market outlook remains positive for CTAs looking to buy equities, especially in the US and Europe. With the potential for further gains in trend-following strategies, investors should consider the implications of Fed policy changes and position themselves accordingly to capitalize on market opportunities.