Investing.com – Trend-following funds (CTAs) still have room to buy stocks despite recent market gains on expectations that the U.S. Federal Reserve will soon cut interest rates, Bank of America analysts said in a report on Friday.
“All equity indices considered in this report posted gains this week, but the positioning of our CTA model remains almost unchanged,” said BofA analysts, suggesting that further buying by systematic traders is possible in the near future.
The market collapse in early August has triggered buy signals for shorter-term CTAs, commodity trading advisors – funds that systematically track price trends across asset classes. These shorter-term trend followers are likely to add to bullish bets on equities as both and are in high demand, they added.
“Our model assumes that the largest trend-following purchases will take place in the US (S&P 500 and NASDAQ-100) and Europe (EURO STOXX 50),” the analysts noted.
For the S&P 500, Bank of America’s model, which equally weights short-term and long-term trend signals, showed that CTAs are currently long with a trend strength of 29%. The bank forecasts that this could increase to 36% to 39% over the next five trading sessions under medium to bullish scenarios.
Meanwhile, for the NASDAQ-100, the model indicates that the CTAs are long and have a trend strength of 6%, which could potentially rise to 21-22% in the coming week under favorable conditions.
The bullish bets on stock prices come amid expectations about Fed policy after Federal Reserve Chairman Jerome Powell signaled a rate cut in September.
“It is time to adjust policy,” Powell said, vowing to “do everything in our power to maintain the strength of the labor market as the Fed continues to seek to reduce inflation to its 2 percent target.”
About 70% of traders now expect the Fed to do so in September.
