Goldman Sachs Sees Bullish Surge in U.S. Stocks Ahead of Labor Day, Cautions on Mid-September Downturn

Goldman Sachs Global Markets Managing Director and strategist Scott Rubner has indicated that the U.S. stock market is poised to rise over the next four weeks, driven by favorable technicals and strong corporate buybacks. In a note to clients on Monday, Rubner stated that the threshold to being bearish on the market before the Labor Day holiday is quite high.
Based on rules-driven systematic fund exposure, total long positions have decreased significantly from $450 billion in July to the current $250 billion. Despite the market's direction, Commodity Trading Advisors (CTAs) are expected to exhibit substantial buying demand in the upcoming week. These funds are likely to purchase stocks, contributing to an upswing in the market.
In addition to the expected activity from CTAs, corporate demand will also play a supportive role in the stock market's performance. However, Rubner issued a cautionary note stating that after September 16, the stock market might turn bearish, as the second half of September is historically one of the worst two-week trading periods of the year.
Rubner has observed that systematic funds' selling pressures have eased, and he anticipates a tactical bullish strategy towards the end of August. Previously, Rubner had accurately predicted a pullback in U.S. equities and advised reducing exposure in late June, a forecast that proved correct as the S&P 500 reached its peak in mid-July before declining.
Corporate buybacks typically peak during August and September, ranking second only to the November-December period. Goldman Sachs estimates that buyback windows will be open for 90% of S&P 500 constituents until September 6, potentially generating an average daily purchasing power of approximately $4.75 billion.
Despite the optimistic short-term outlook, Rubner warns that market conditions could deteriorate after mid-September, with significant recovery likely only in Q4 and post the U.S. presidential elections in November.
The strategic analysis by Rubner suggests monitoring both systematic fund actions and corporate buybacks closely as these factors will significantly influence the short-term movements in the U.S. stock market.