S&P 500 Hits Records but BofA Warns Trend-Follower Buying Is Fading
Bank of America strategists warn that even as the S&P 500 punches to fresh records, systematic CTA buying that helped fuel the rally is losing momentum. The bank said the diminishing flow leaves equities more vulnerable to a near-term pullback.
Wall Street's main S&P 500 closed Friday near a fresh all-time high, but Bank of America strategists say the systematic-investor cohort known as CTAs is approaching positioning saturation. The bank argues the mechanical bid that powered the latest leg of the rally has begun to lose steam.
In the note, CTAs' net long exposure to major equity indices is described as having ballooned over three months, leaving little dry powder. BofA flags that any short-term volatility spike could push these funds into forced selling, draining market depth. The Iran war and the upcoming Trump-Xi summit are the closest catalysts on the calendar.
Latin American equities trade with a tight beta to U.S. tape. Brazil's Bovespa and Mexico's IPC are sensitive to a Wall Street risk-off rotation, as are the Brazilian real and Mexican peso. Strategists single out a break below the 50-day moving average as the likely flow trigger.
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