Share sell-off not as bad as previous falls, some assets now cheap and Gold to rally further: Global X
The recent sell-off of US share markets – while being far from the worst we have seen in recent memory – is a timely reminder that short term pull backs is the price of admission you pay for potential long-term gains, according to ETF provider Global X.
Global X Senior Investment Strategist Billy Leung says the current drawdown so far is significantly smaller than COVID (-34%), the GFC (-16%), or even the 2022 Fed tightening cycle (-24%), compared to -9% for the current drop.
“While systematic selling continues, we believe that commodity trading advisors (CTAs) are nearing their maximum short exposure across equities, and that has been a big reason why US shares have fallen so sharply in recent days,” Leung said.
“However, we believe that systematic or computerised selling is close to exhaustion, and this could help stabilise global share markets. We could even see computerised traders flip into net buyers if daily moves stabilise,” Leung added.
Systematic or computerised traders, most commonly known as specialist quantitative trading or CTAs, typically trade when asset or index prices breach key technical levels. CTA adopt rules-based trading in which buying or selling occurs without human intervention. A breach of key technical levels has triggered CTA selling in US share markets this month, with estimates of US$70 billion to 480 billion in short S&P exposure.
According to Leung, the sell-off has been broad-based, but there’s a defensive tilt – consumer staples, utilities, and healthcare are holding up, while technology companies and small caps are leading declines. Moreover, US equities are attractively priced.
“AI leaders like Nvidia (down 20% in the past month) are struggling as investors take profits and reposition their portfolios. The Nvidia GTC AI conference on March 17-21 could be an important sentiment test, with any comments from CEO Jensen Huang likely to be very closely watched by global investors. Trump’s America First Speech in April will also be a key event for clarity on tariffs, trade policy and likely economic direction,” Leung said.
“Despite the volatility, US equities remain relatively attractive on a forward basis. The S&P 500 trades at a 2026 PE of 18.6x and 2027 PE of 17.0x, slightly richer than MSCI World, but supported by higher EPS growth expectations.
“Bonds are seeing inflows, and history suggests that once positioning washes out, opportunities will emerge. Taking bits of duration in the belly of the curve (intermediate parts) which are more sensitive to growth and US Fed policy decisions can make sense. This is where we saw the biggest moves in the US yield curve (1-5 years) rather than the very short and long term,” Leung said.
While gold prices have retreated from record highs, this is not surprising, when portfolios are sold down – gold is also sold.
“However, gold has done its job very well by being much more resilient than broader equity markets. We expect gold will appreciate in the short-term and rise to US$3000/ounce, as the environment is very positive for gold; volatility will contribute to safe haven purchases, while geopolitical tailwinds remain in the background,” said Leung.
“Copper miners will likely see short term weakness, but the market sentiment should be mostly focused on Chinese economic resurgence. Copper demand could see a rebound this year, particularly for miners exposed to infrastructure and industrial demand.”
