The latest threat to US stocks: Systematic trend-following funds are reducing their exposure to the market

As if the U.S. stock market didn’t have enough problems to contend with, there’s one more thing: Systematic trend-following funds are reducing their exposure, which could potentially put even more downward pressure on the markets in the coming weeks.

Goldman analysts estimate that commodity trading advisors, a type of trend-following hedge fund that typically operates in futures markets, exited about $40 billion worth of exposure to U.S. stocks last week. According to Goldman data, this is the fastest CTA sales pace on record.

Fortunately, the Goldman team believes that selling pressure from systematic funds will ease in the coming days, but not everyone agrees.

In a note published late last week and recently obtained by MarketWatch, a team at UBS said they expected another $20 billion to $30 billion in CTA sales in the next two weeks.

According to their data, systematic funds would be net short stocks for the first time since November last year.

“CTAs are now neutral again on stocks and will be more likely to sell than buy from here,” the UBS team said.

The S&P 500 fell 3.6% in the quarter ended September, its first quarterly decline in a year. And share prices have fallen since then, with the index down another 0.5% since the start of October. All in all, the S&P 500 SPX

has fallen nearly 7.5% since the index posted its highest close of the year at 4,588.96 on July 31. By comparison, the index closed at 4,263.75 on Wednesday after rising 0.8%, its biggest daily gain in three weeks, according to FactSet data.

The Nasdaq Composite COMP rose 1.4% on Wednesday to close at 13,236.01, while the Dow Jones Industrial Average DJIA rose 127.17 points, or 0.4%, to 33,129.55, as falling Treasury yields reportedly gave stocks a reprieve would have provided.

Rising Treasury yields, particularly with longer maturities, are putting pressure on stocks as yields on the 10-year Treasury note BX:TMUBMUSD10Y and the 30-year Treasury note BX:TMUBMUSD30Y hit their highest levels in 16 years earlier this week.

Rising bond yields can increase borrowing costs for companies, potentially putting pressure on economic growth while making U.S. stock valuations comparatively less attractive to investors.

For example, they recently drove the U.S. equity risk premium, a measure of the expected risk-adjusted return of stocks relative to bonds, to its lowest level in more than 20 years at just under 0.90 earlier this week, according to Dow Jones Market Data.

This means that the compensation investors can expect for owning stocks instead of bonds looks pretty unfavorable, at least in theory.

Investors also blame inflated valuations of mega-cap tech stocks and worries that longer-term higher interest rates from the Federal Reserve are helping fuel the selloff.