Also known as CTAs (commodity trading advisers), trend-following hedge funds trade systematically to catch big trends in markets.
Goldman Sachs said an S&P 500 below 5,135 points "would flip short-term trend from more positive to negative" among trend-following hedge funds, triggering equity sales.
A fall of 3.2% in the S&P over the next month would force CTAs to sell around $20 billion in companies in the index and over $200 billion in global equities, the bank said in a note published on Friday. If the S&P further retreated, sales in the S&P could total $42 billion.
The S&P is down roughly 2.6% since April 11 amid stronger-than-expected U.S. prices and sales and renewed geopolitical concerns.
Overall, last week hedge funds on net sold U.S. equities for a second straight week, mostly after the a strong consumer price index surprised investors on Wednesday, casting further doubt on whether the Federal Reserve will start cutting interest rates soon.
In a separate note, Goldman said hedge funds were net buyers of Chinese equities for the third straight week and net sellers of U.S. energy stocks.
(Reporting by Carolina Mandl in New York; editing by Jonathan Oatis)
By Carolina Mandl
