【TMGM Financial Recap】Everyone Stay Alert! The US Stock Market Just Ended A Three-Day Losing Streak, But Bank Of America Is Calling For 'Sell, Sell, Sell.' The Buying Power Is Almost Exhausted

Estimates by Bank of America's equity and quantitative strategy team show that in a US stock rally, systematic strategies have only about $9 billion in net buying space; When the market flattens, they turn into net selling; And once the market falls, the sell-off scale of CTAs and volatility control strategies could reach $163 billion. The extreme asymmetry between buying and selling reveals the essence of this rebound: the rise relies on policy expectations and sentiment recovery, while the decline is backed by a set of automatically triggered mechanical rules.

Buying Vacuum: Machines Fully Positioned, Companies Exiting, Institutions Withdrawing Investment

To understand why Bank of America says "only 9 billion left," you first need to look at where this money comes from. Systematic strategies mainly refer to CTAs (Commodity Trading Advisors), volatility control strategies, and risk parity funds. They do not study fundamentals but mechanically adjust positions based on rules like price trends, volatility levels, and correlations. In recent years, U.S. stocks have repeatedly fallen and then regained, with highs after drops, largely relying on this kind of "machine money" continuously leveraged to buy in low-volatility environments.

Bank of America estimates that volatility control strategies have equity positions at the 100th percentile in history, a fully invested state not seen in decades. The CTA's situation is equally bleak, with trend short positions rising to historic highs, indicating that these strategies have long been "betting" on the downside.

As machine money runs dry, humanity's largest buyers are also exiting. Corporate buybacks have been the largest single buying order in the US stock market over the past decade, but after the September earnings season ended, companies entered a quiet period, and by rule, they are not allowed to buy back their own shares before or after the earnings window, which is rapidly fading. Hedge funds, on the other hand, have net sold US stocks for six consecutive weeks as of early September, with the selling volume reaching the third highest in the past decade. The three main buyers are either fully invested, exited, or restricted; the only remaining buying force in the market is retail investors who buy on dips and remain heavily positioned. Historically, when institutions and retail investors see this divergence in positions, the market often corrects in line with institutional expectations.

Seller-Side Automation: Declines Are A "Self-Fulfilling" Prophecy

The buying vacuum is just one side of the coin. The $163 billion sell-off estimated by Bank of America is possible because when the market falls, machine selling is not "willing" but "forced," and it self-reinforcements. Volatility rises → stock price decline→ volatility control strategies deleverage and sell stocks according to rules→ worsening the decline → volatility increases further. CTAs join short selling after the trend is established, and risk parity funds are forced to rebalance due to sudden changes in equity-bond correlations. Every step is executed automatically, without hesitation or valuation. This is precisely the "epic" volatility collapse risk warned about by Nomura strategists. When such strategies are collectively forced to reduce positions, significant trading losses often follow.

February 2018 "Volatility End": Prolonged low volatility caused unprecedented crowding of short volatility products; VIX doubled in a single day, and the star product XIV tracking this strategy was wiped out overnight; On August 5, 2024, yen arbitrage trade unwinding triggered a global volatility sell-off, with the S&P plunging about 3% in a single day. Both opened sharply and ended with "some bottom-fishing, V-shaped repair." But the prerequisite for recovery is sufficient existing buying.

Tactical Caution Has Become An Institutional Consensus

Bank of America is not fighting alone. Since the beginning of this week, several Wall Street institutions have simultaneously shifted to "tactical caution." Wells Fargo's chief equity strategist Ohsung Kwon warned that concerns about the sustainability of the AI investment boom will dominate September, and with the midterm elections approaching, the market should remain "broadly cautious." After hawkish speeches by Wash-Jackson Hole, JPMorgan Chase downgraded its outlook for U.S. stocks in the coming weeks to "tactical caution." Scott Rubner of Citadel Securities put it bluntly: "Upside catalysts are becoming fewer, while downside catalysts are increasing." He suggested using rebounds to reduce positions and buy cheap ones for downward protection but emphasized that this is a "tactical reset" rather than a bearish turn.

The Trigger Points Have Already Been Set: The Three-Pronged Testimony Of Nonfarm Payrolls, CPI, And FOMC

Fragile structures need a fuse, and the schedule for the first half of September is packed with gunpowder even tighter. On Friday (September 4), the August nonfarm payroll report will be released first. Market expectations are so divided they're rare: Economists surveyed by FactSet expect 65,000 new jobs and an unemployment rate to rise from 4.1% to 4.2% in August, but all forecasts range from a decrease of 25,000 to an increase of 121,000. Major institutions like Bank of America, Barclays, Citigroup, and Goldman Sachs generally expect an increase of no more than 40,000.

Next is the September 11 CPI, with the market expecting a year-on-year increase of 3.4%, unchanged from July, while the ongoing Iran war poses a clear upside risk to oil prices. On September 15-16, the Federal Reserve held its FOMC meeting, and CME data showed that market pricing in rate hikes was already in the 66% to 68% range.

The key point is that the market's current interpretation of the data has entered a stage where "no matter how much it is released, it's hard to be satisfied." Bank of America economist Aditya Bhave made it clear in her latest report: nonfarm payrolls are just the "appetizer" before the September rate meeting; the key to whether to raise rates is the CPI. "Unless a major downturn occurs, the responsibility now lies with Walsh, who needs to raise rates in September." This completely reverses the old logic: the previous "employment gap → no rate hikes → good for the stock market," now the employment gap is interpreted as signs of stagflation and the "loose credit constraints" of rate hikes disappearing; strong employment directly gives the green light for rate hikes. At Jackson Hole, Wash defined the labor market as "fairly stable," with policy focus entirely on inflation. This means that before inflation data, no employment data can reverse the pricing of rate hikes, and the market can only struggle in suspense.

Three paths are now clear. If nonfarm payrolls are strong or CPI exceeds expectations, the 10-year yield breaks above 5%, JPMorgan's so-called "knee-hopping pullback" will be the first to begin, and Bank of America estimates $163 billion in machine selling may passively amplify volatility; If data is moderate and rate hikes take effect, the market may follow a "boot landing" recovery logic, but only if CPI is not high enough to break through the 5% warning line; If employment and inflation weaken significantly simultaneously, rate hike expectations collapse and yields fall rapidly, only then will pent-up buying have a chance to rebound properly.

The next window of observation has already been set: Friday's nonfarm payroll wage growth, the actual CPI reading on September 11, whether the 10-year yield can close above 5%, and whether the VIX holds above 20—any of these exceeding expectations could trigger the $163 billion sell-off.