The pullback is not coming! Goldman: The end of the year is usually the strongest month for US stocks

The upcoming U.S. election has Wall Street on edge, as evidenced by the elevated VIX index. However, Goldman Group managing director Scott Rubner believes that the short-term pullback that many investors are expecting or anticipating may not materialize. Rubner expects the stock market to continue to rise through the end of the year, in line with seasonal trends. Historical data shows that November and December are typically the strongest months for stock market returns. Rubner notes that the election — scheduled for Nov. 5 — could serve as a catalyst for risk assets, triggering investors' "fear of missing out" (FOMO) and driving the market higher. In addition, he believes that the themes and sectors that have been overlooked may see the biggest gains, as they have the least exposure at present. Rubner also notes that corporate buybacks and investor seasonal portfolio rebalancing could have a bigger impact on the market in the next two months. He says that target-date funds, retail investors and private wealth management firms typically rebalance their portfolios in January, April and November. Investors holding maturing U.S. Treasury bills may choose to re-enter the stock market. If the market performs as it has historically, the last two months of the year could be very rewarding. Since 1928, the median return for the S&P 500 between Oct. 27 and Dec. 31 has been 5.2%. In election years, that figure rises to 6.3%. Corporate buybacks could also help drive the market higher as the window for companies to buy back their shares reopens. According to Goldman's trading desk, November is historically the most active month for corporate buybacks, with just buybacks alone historically bringing in more than $1 trillion. Mutual funds and pension funds may also reduce some of their selling at the end of their fiscal year in late October. Rubner also notes that retail trading activity in hot stocks such as Nvidia NVDA and Tesla TSLA has picked up again. If this trend continues, it could add more buyers. After answering a flood of questions from clients over the weekend, Rubner found a common theme: Investors have shifted from asking how to hedge against a sell-off to how to better take advantage of the market's rise before the end of the year. Rubner has been bullish on the market. Earlier this month, he said he was concerned that his year-end target of 6,000 for the S&P 500 was not high enough. The index is now just 3% away from that target.