Multiple pressures facing the US stock market, analysts say there is a new trouble

The US stock market is facing multiple pressures, and now there is a new issue: systematic trend-following funds are reducing their risk exposure, which may bring greater downward pressure to the market in the coming weeks.

According to the analysis by Goldman Sachs, commodity trading advisors (CTAs), which are trend-following hedge funds typically active in the futures market, sold approximately $40 billion worth of US stocks last week. According to Goldman Sachs' data, this is the fastest sell-off by CTAs in history.

The Goldman Sachs team expects the selling pressure from systematic funds to decrease in the next few days, but not everyone agrees.

A team from UBS stated in a note released over the weekend that they expect an additional $20 billion to $30 billion of CTA selling in the next two weeks. According to their data, this will result in systematic funds being net short on stocks for the first time since November last year.

The UBS team stated, "CTAs are now neutral on stocks and are more likely to sell than buy from here."

The S&P 500 index fell 3.6% in the quarter ending in September, marking the first quarterly decline in a year. Since the beginning of October, the stock market has been declining, with the index falling another 0.5%. Since reaching its highest closing price of the year on July 31, the S&P 500 index has fallen nearly 7.5%.

The three major indices rose on Wednesday as the decline in US Treasury yields provided some relief to the stock market. Earlier this week, the yields on 10-year and 30-year US Treasury bonds reached their highest levels in 16 years, putting pressure on the stock market.

The rise in bond yields could increase borrowing costs for companies, putting pressure on economic growth and making US stocks relatively less attractive to investors.

According to Dow Jones Market Data, the US stock risk premium (a measure of the expected risk-adjusted return of stocks compared to bonds) fell to its lowest level in over 20 years earlier this week, slightly below 0.9.

This means that, at least in theory, investors expect the returns from stocks to be less favorable compared to bonds. Investors also believe that the valuations of tech giants are too high and that the Federal Reserve's plan for "higher for longer" interest rates has helped drive the recent sell-off.