Momentum traders set to buy the S&P 500 ‘in every scenario,’ says Goldman Sachs

Onto our our call of the day from Goldman Sachs, which says that an influential crowd of momentum traders is ready to buy the S&P 500 in a big way over the next month.

The below chart from the bank shows record-low exposure for U.S. equities among commodity trading advisors, or CTAs, who profit from bets on futures markets, and often follow trends.

According to a note from the bank, these CTAs are short some $90 billion of global equities, what it says is a zero percentile reading. In the U.S. alone, they are short $47 billion in equities — the largest U.S. short position for this group on record.

“Per GS model, [the] CTAs are now buyers of SPX in every scenario over the next month,” said the bank in an note from Monday.

So those CTAs who have been busy selling the S&P 500, are ready to buy it back if Goldman is right. However, not everyone advises following the trend-loving CTAs, who some criticize for often swinging from one extreme to the other.

As the FT has pointed out, CTAs had a record 2022 performance thanks to surging inflation, but got burned earlier this year on bets that bank turmoil would force the Fed to stop hiking interest rates.

MarketWatch’s Mark Hulbert notes that while October can be a historically volatile month, it can also mark the start of a seasonal bounce for stocks. Jeff Hirsch, editor of the Stock Trader’s Almanac & Almanac Investor Newsletter, refers to October as a “bear-killer, bargain month and turnaround month,” with solid, though yes, volatile trading at times.

This seasonality chart from Equity Clock that has been making the rounds may also support stock buyers:

Here’s yet another buyer friendly chart — maybe — from Finom Group’s chief market strategist, Seth Golden:

Also read: 1970s-style stagflation may be at risk of repeating itself, Deutsche Bank warns

The markets

Stock futures
ES00,
+0.11%

NQ00,
+0.06%
are rising, with Treasury yields
BX:TMUBMUSD10Y

BX:TMUBMUSD02Y
diving. Gold
GC00,
+0.21%
is up another $6, but the dollar
DXY
is down, along with oil
CL.1,
-0.34%
is down modestly as investors turn to inventory reports due later in the week.

Read: Treasury-market selloff has become the worst bond bear market of all time, according to BofA

For more market updates plus actionable trade ideas for stocks, options and crypto, subscribe to MarketDiem by Investor’s Business Daily.

The buzz

Israel’s war on Gaza entered its fourth day on Tuesday, with repeated bombings of Gaza City and 300,000 reservists called up. A senior Hamas official rejected the idea that Iran had some role in the planning of the surprise attacks that have led to 1,600 deaths on both sides.

PepsiCo
PEP,
+0.67%
shares are up after the drinks maker lifted guidance. That’s as investors wait for Friday’s second-quarter kickoff from banking giants JPMorgan
JPM,
-0.23%,
BlackRock
BLK,
-0.72%,
Citigroup
C,
+0.42%
and Wells Fargo
WFC,
+0.03%.

Auto workers walked off the job at three GM
GM,
+0.29%
facilities in Canada early Tuesday after their union failed to reach a deal.

Country Garden, China’s largest property developer, has warned it may not repay international debts.

Fed appearances are as follows: Atlanta Fed President Raphael Bostic will take part in a moderated conversation starting at 9:30 a.m., then Fed Gov. Christopher Waller at 1 p.m., Minneapolis Fed President Neel Kashkari at 3 p.m. and San Francisco President Mary Daly at 6 p.m. Wholesale inventories are due at 10 a.m.

The IMF kept its limp global expansion forecasts mostly in place — 3% for 2023 and slightly less growth of 2.9% next year.

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Chart of the day

Gold climbed 1% on Monday as jittery investors seeking a haven for their money amid fresh Middle East violence pushed the commodity to its best day since August. This chart from Wisdom Tree takes a look at how gold has performed a year on from major geopolitical events and crisis:

“The metal has a strong reputation as a geopolitical hedge, even though frequently the price moves dissipate quickly. Occasionally the prices gains stick and are very meaningful. Take the Yom Kippur War 50 years ago, where gold prices surged more than 47% by 1 year after the start of the event,” Nitesh Shah, head of commodities & macroeconomic research at WisdomTree, told clients in a note.

The tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

Random reads

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