Goldman Sachs Projects Record Highs for S&P 500 Amid Corporate Buyback Surge and Systematic Inflows
Monday, Aug 26, 2024 1:00 pm ET
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Goldman Sachs' trading division, led by Global Markets Managing Director and tactical expert Scott Rubner, projects strong capital inflows from corporate buybacks and systematic investment strategies to push the S&P 500 index to record highs this week, thereby heightening investors' fear of missing out (FOMO). According to Rubner’s estimates, non-emotional demand from robots and corporates is expected to reach $17 billion daily throughout the three weeks leading up to September 16.
Rubner, in a recent report to clients, emphasized the potential for the S&P 500 index to hit new historical peaks driven by these robust capital flows. He noted that the S&P 500 index fell 0.3% on Monday, remaining just under 1% below its all-time closing high set on July 16.
Furthermore, Rubner reiterated Goldman’s perspective that the Federal Reserve’s dovish stance on interest rates has paved the way for increased leverage. He predicts that Commodity Trading Advisors (CTAs) might buy stocks regardless of market movements over the next week. Last week, the corporate buyback desk at Goldman experienced the highest demand this year, more than doubling the typical figures for 2023.
This surge in activity is expected to persist until the silence period begins on September 13. Passive investors funneled $20 billion into global stock markets last week alone. "Everyone will come back," Rubner noted. "The downside exposure of U.S. systematic strategies has now been overdone."
However, Rubner warns that this demand could diminish after three weeks, potentially leading to a shift back to a bearish stance. The upcoming major test for the market will be Nvidia’s earnings report due post-market on Wednesday, with expectations of more than doubling year-over-year in both earnings and revenue.
Based on Rubner's calculations, the options market implies a 9.35% swing, or approximately $298 billion, in Nvidia’s valuation impact on the market. Given the sell-off in tech stocks, he suggests that Nvidia’s bar this earnings season might be lower compared to previous quarters. "Can you imagine what would happen if Nvidia beats expectations on Wednesday?" Rubner asked.
Goldman’s trading desk suggests that the surge in momentum trading and corporate buybacks could drive U.S. stocks higher over the next four weeks. Rubner contends that ahead of Labor Day, the threshold for shorting stocks remains high. Having accurately forecasted the late-summer market correction and recommended reducing U.S. equity exposure post-July 4th, Rubner now adopts a bullish outlook.
He cites the current positioning and capital flows as favorable for stock market gains, noting that short sellers are lacking ammunition. Trend-following systematic funds could further bolster the market as they re-leverage after reducing their long positions from $450 billion in July to $250 billion. Adjusting for lower liquidity in August, these capital flows could significantly impact the market.
Corporate repurchase activity is another key driver. Goldman estimates daily buybacks will hit $6.62 billion before about 50% of companies close their buyback windows by September 13. The total authorization for stock buybacks is expected to reach $1.15 trillion, with actual buybacks for 2024 projected at $960 billion.
Looking ahead, more capital from money markets may flow into equities, with U.S. money market fund assets managed at approximately $7.3 trillion. “As money market yields begin to decline significantly, this mountain of capital will start shifting elsewhere after the U.S. election,” Rubner commented.
Nonetheless, the market could face further declines. Rubner cautions that stocks might revert to downward trends post-September 16, with the latter half of September historically being the most challenging fortnight of the trading year.
Rubner, in a recent report to clients, emphasized the potential for the S&P 500 index to hit new historical peaks driven by these robust capital flows. He noted that the S&P 500 index fell 0.3% on Monday, remaining just under 1% below its all-time closing high set on July 16.
Furthermore, Rubner reiterated Goldman’s perspective that the Federal Reserve’s dovish stance on interest rates has paved the way for increased leverage. He predicts that Commodity Trading Advisors (CTAs) might buy stocks regardless of market movements over the next week. Last week, the corporate buyback desk at Goldman experienced the highest demand this year, more than doubling the typical figures for 2023.
This surge in activity is expected to persist until the silence period begins on September 13. Passive investors funneled $20 billion into global stock markets last week alone. "Everyone will come back," Rubner noted. "The downside exposure of U.S. systematic strategies has now been overdone."
However, Rubner warns that this demand could diminish after three weeks, potentially leading to a shift back to a bearish stance. The upcoming major test for the market will be Nvidia’s earnings report due post-market on Wednesday, with expectations of more than doubling year-over-year in both earnings and revenue.
Based on Rubner's calculations, the options market implies a 9.35% swing, or approximately $298 billion, in Nvidia’s valuation impact on the market. Given the sell-off in tech stocks, he suggests that Nvidia’s bar this earnings season might be lower compared to previous quarters. "Can you imagine what would happen if Nvidia beats expectations on Wednesday?" Rubner asked.
Goldman’s trading desk suggests that the surge in momentum trading and corporate buybacks could drive U.S. stocks higher over the next four weeks. Rubner contends that ahead of Labor Day, the threshold for shorting stocks remains high. Having accurately forecasted the late-summer market correction and recommended reducing U.S. equity exposure post-July 4th, Rubner now adopts a bullish outlook.
He cites the current positioning and capital flows as favorable for stock market gains, noting that short sellers are lacking ammunition. Trend-following systematic funds could further bolster the market as they re-leverage after reducing their long positions from $450 billion in July to $250 billion. Adjusting for lower liquidity in August, these capital flows could significantly impact the market.
Corporate repurchase activity is another key driver. Goldman estimates daily buybacks will hit $6.62 billion before about 50% of companies close their buyback windows by September 13. The total authorization for stock buybacks is expected to reach $1.15 trillion, with actual buybacks for 2024 projected at $960 billion.
Looking ahead, more capital from money markets may flow into equities, with U.S. money market fund assets managed at approximately $7.3 trillion. “As money market yields begin to decline significantly, this mountain of capital will start shifting elsewhere after the U.S. election,” Rubner commented.
Nonetheless, the market could face further declines. Rubner cautions that stocks might revert to downward trends post-September 16, with the latter half of September historically being the most challenging fortnight of the trading year.