Overview
Analysts at Bank of America said on Monday that global markets continue to face net selling pressure from systematic trading activity, with Commodity Trading Advisors (CTAs) showing a persistent selling bias that spans both equities and bonds. The bank's research note characterizes systematic flows as a material near-term driver of volatility despite recent market gains.
Market context and positioning
The note observes that markets have shown signs of recovery after U.S. equities ended a five-week losing streak last week. Even so, the research team flagged ongoing uncertainty tied to developments in the Iran conflict as a potential check on further gains for Wall Street.
Bank of America highlighted that, despite a notable rally in risk assets, the benchmark CTA index did not register meaningful losses on either Tuesday or Wednesday of the prior week. The bank interprets that observation to mean CTAs were not uniformly or maximally short, and that a sizeable portion of CTA assets under management likely sits in slower-moving models.
According to the note, the fastest trading CTA models are positioned heavily short, while slower-moving strategies still maintain neutral or residual long holdings. That mix implies bearish positioning has not been fully exhausted, and that the community of systematic managers is heterogeneous in its speed and exposure.
Commodities and precious metals
Precious metals prices fell over the prior week as some investors rotated back into riskier assets like equities while assessing updates related to the Iran conflict. Bank of America said trend-following commodity futures have continued to weaken following recent declines. The research further noted that the fastest-moving CTAs could already be short copper and could soon become short gold as well.
Potential scale of systematic selling
Bank of America estimated that in a declining market environment, systematic strategies could offload as much as $51 billion of equities over the next week. By contrast, in stable or rising conditions the bank estimates those strategies might buy modestly, at about $1 billion.
Geopolitical remark
The research note also cited an influential social media post on Sunday in which an American political figure stated the U.S. would strike Iran's power plants and bridges if the Strait of Hormuz is not opened by Tuesday, adding the quoted line: "Tuesday will be Power Plant Day, and Bridge Day, all wrapped up in one, in Iran." The bank presents this comment as part of the risk backdrop market participants are weighing.
Implications
Bank of America’s assessment frames CTAs and other systematic managers as a continuing source of downward pressure on both equity and bond markets, with additional potential spillover into commodity markets such as copper and gold. The pace differences among CTA models mean volatility may persist as faster models adjust positions more quickly than slower ones.