Wall Street Warning: U.S. Stocks Face “Tens of Billions of Dollars” Sell-off
After the S&P 500 index hit its biggest two-day decline since the Silicon Valley Bank (SVB) crisis, one foot of the U.S. stock bulls seemed to have stuck out of the "cliff edge." Goldman Sachs and Bank of America, two major investment banks on Wall Street, warned in unison that, according to the CTA (Commodity Trading Advisors) model and the stop loss levels set, U.S. stocks have touched this "red line". It is estimated that hedge funds may conduct a stock sell-off of US$20 billion to US$42 billion in the next period of time.
U.S. stocks rose slightly during the session on Tuesday. The Dow Jones rose slightly by 0.32% to 37,856 points, the Nasdaq rose slightly by 0.04% to 15,890 points, and the S&P 500 fell slightly by 0.03% to 5,060 points.
According to foreign reports, Goldman Sachs stated in a latest report that if the S&P 500 index falls below 5135 points, the short-term trend of these hedge funds will "change from more positive to negative", thus triggering a stock sell-off.
Goldman Sachs said in a report published last Friday that if the S&P 500 index fell 3.2% in the next month, it would force CTA to sell approximately US$20 billion in S&P 500 index components and more than US$200 billion in global stocks.
If the S&P 500 falls further, Goldman Sachs believes that the scale of selling of the index's constituent stocks may reach $42 billion.
From the close of last Thursday to Monday, the S&P 500 index has fallen by about 2.6%. This is because U.S. CPI and retail sales data both exceeded expectations, frustrating expectations of a Federal Reserve interest rate cut. In addition, geopolitical concerns are being further ignited. It is worth mentioning that this is also the largest two-day decline for the S&P 500 since the Silicon Valley banking crisis in early March 2023.
Goldman Sachs pointed out that overall, hedge funds were net sellers of U.S. stocks for the second consecutive week last week. The bank also pointed out in another report that hedge funds were net buyers of Chinese stocks and net sellers of U.S. energy for the third consecutive week. share.
Not only did Goldman Sachs issue an alarm, Bank of America also warned that the CTA stop loss level was being triggered. In a recent report, Bank of America emphasized the possibility of CTA triggering a sell signal and set the CTA stop loss trigger point for the S&P 500 Index at 5079 points, while the S&P 500 index fell below this price on Tuesday. As of 12:34 EST, the index was at 5060.89 points, 0.02%.
Bank of America stated that the stop-loss level of CTA trend tracking has been triggered. If the index continues to fall, CTA will be forced to sell more stocks to stop losses, which will further intensify market panic and create a vicious cycle.
Bank of America believes that the sharp decline in the S&P 500 Index since last Friday should be due to the selling of volatility control strategies, and quickly formed a self-reinforcing downward spiral, like a snowball effect.
According to this strategy, hedge funds focus on market volatility to adjust stock positions to control portfolio risks. When the stock market falls and volatility rises, this type of strategy will reduce positions accordingly, thereby bringing additional market selling pressure.
In terms of downward support, Bank of America said that as systemic selling pressure increases, increased buying of some options may play a buffering role near 5,000 points.