After helping to push U.S. stocks’ higher in November and December, trend-following trading firms known as CTAs are nearly tapped out, according to a report published by a Goldman Sachs Group trading desk.
That could limit further upside for the market, although the analysts cautioned that CTAs’ positioning may not be indicative of what other market participants are doing.
According to a report reviewed by MarketWatch on Wednesday, Goldman’s models suggest that CTAs — or commodity trading advisers — are already nearly max long when it comes to their exposure to the S&P 500, which they typically trade by buying or shorting futures contracts tied to the index.
Numbers from the Goldman trading desk that typically services CTAs show that this class of traders is carrying about $40 billion in long exposure to the S&P 500, and nearly $150 billion in exposure to global equities.
This would suggest that even if global stocks continue to power higher, CTAs’ ability to keep chasing the tape may have reached its limit.
GOLDMAN SACHS
CTAs certainly have a lot of influence across equity, fixed-income and commodity markets.
That said, Goldman’s numbers represent only a partial view of what’s happening in the space, and there are plenty of other types of traders aside from CTAs who can help push markets higher or lower.
See: November’s stock-market rally gets a boost from trend-following funds and company share buybacks
The S&P 500
SPX
gained 0.1% on Wednesday, closing at around 4,781, just a few points shy of its record closing high from Jan. 3, 2022, according to FactSet data. The large-cap index has gained nearly 25% since the beginning of 2023. The Dow Jones Industrial Average
DJIA
rose by around 111 points, or 0.3%, to notch its sixth record close of the year.
Check out: The latest threat to U.S. stocks: computerized trend-following funds are cutting their exposure to the market
