- Goldman Sachs predicts record highs for stocks this week as $85 billion flows to equities.
- Systematic trading strategies and corporate buyback programs are driving the demand, Goldman said.
- “The pain trade for equities is higher into mid-September after the green light was given on Friday to re-lever.”
Record highs could be in store for the stock market this week as $85 billion in “unemotional demand” floods equities, according to Goldman Sachs.
The bank’s trading desk, led by managing director Scott Rubner, said in a note on Monday that stocks face little resistance to notch new all-time highs in what has historically been a low-liquidity week for the market.
“I am back on All-Time High watch, and I think we make new highs this week. I think that FOMO will increase when the new all-time high headline hits,” Rubner said.
He added: “We estimate $17 billion of unemotional demand between robots and corporates every day this week during the most illiquid week of the year.”
The Dow Jones Industrial Average hit a record closing high on Monday, and as of Tuesday morning, the S&P 500 is less than 1% away from notching its own all-time high.
Helping drive the potential gains in stocks this week is Wall Street’s cohort of professional trend followers, known as CTAs. Rubner said “everyone is going back to the pool” after systematic trading strategies overshot their exposure to the downside during the sell-off earlier this month.
“The pain trade for equities is higher into mid-September after the green light was given on Friday to re-lever,” Rubner said.
Corporate stock buyback programs are also helping fuel some of the advance, and they should continue until September 13, when the next trading blackout window occurs ahead of third-quarter earnings results in mid-October.
“The August to September corporate repurchase window is historically strong. This two-month period is the second best of the year with 20.7% of executions. GS corporate buyback estimates $1.15 TRILLION worth of authorizations and $960 BILLION worth,” Rubner explained.
Finally, retail investors have been unfazed by the recent stock market volatility and have “showed diamond hands by buying the dip,” Rubner said.
Whether Rubner’s prediction of imminent record highs in the S&P 500 is right likely hinges on Nvidia’s second-quarter earnings results, set to be released after the market close on Wednesday.
With a $3.12 trillion market valuation, the AI-chip maker represents nearly 7% of the index, meaning any move in Nvidia stock can have a pronounced impact on the broader market.
Rubner ultimately expects record highs in the stock market to quickly be followed by a volatile trading chop in the second half of September, which has historically been a weak time for stocks.
From there, Rubner said the S&P 500 could trade to 6,000 by the end of the year, representing potential upside of about 7% from current levels.
