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Goldman Sachs’ trading desk predicts record stock market highs in the next four weeks, followed by a downturn.
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A low volatility environment and corporate buybacks are driving Goldman’s positive outlook until mid-September.
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“We just witnessed one of the largest and fastest unwinds that I have EVER seen,” according to Goldman’s Scott Rubner.
Investors are advised to expect new record highs in the stock market over the next four weeks, but to be prepared to exit.
This information was shared in a recent note from Goldman Sachs’ trading desk, led by managing director Scott Rubner.
According to Rubner, the stock market is entering “a very positive 4-week equity trading window” that indicates the “pain trade for equities is higher.”
“Global two-week vacations started on Friday at 4pm. The bar for being bearish at the beach into a Labor Day BBQ party is high,” Rubner said, emphasizing that low volatility markets that are common during the end of summer weeks are typically bullish for stock prices.
This new low volatility environment in the stock market comes after a historic decline in the CBOE Volatility Index at 62%, representing the biggest 9-day drop in Wall Street’s fear gauge on record.
“We just witnessed one of the largest and fastest unwinds that I have EVER seen,” Rubner stated, suggesting that professional trend followers who were shaken out of stocks during the early-August sell-off are likely to now switch back to buy mode.
Other buyers of stocks over the next few weeks include companies with authorized share buyback programs.
According to Rubner, with a corporate blackout window starting on September 13 for about 50% of companies, there will be a lot of stock buying between now and then.
“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,” Rubner noted, adding that the bank estimates about $1 trillion in stock buybacks being executed this year.
With the S&P 500 less than 1.4% below its record high, it won’t take much for the index to hit record highs in the short-term.
When to sell stocks
Despite being bullish, Rubner anticipates a volatile stock market and is uncertain about further gains after September 16.
“I am bullish until September 16. This is when seasonals change. 2H of September is the WORST TWO WEEK TRADING period of the year. I will not stick around for this,” Rubner remarked.
This forecast from Rubner is notable considering that he made an accurate stock market prediction in early July, when he said stocks would surge in the first two weeks of July before experiencing volatility in the second half of the month, which is exactly what happened.
“Late 2H September will be a tricky trading environment (especially pre-election),” Rubner added.
When to buy back in
While Rubner expects a surge in stocks over the next four weeks, followed by a period of negative volatility in the second half of September, he still envisions the stock market ending the year at record highs.
“SPX $6K – new highs in Q4, led by November and December months,” Rubner projected, noting that a record $7.3 trillion in US money market funds will flow into stocks and bonds after the US election in early November.
A rise to 6,000 for the S&P 500 represents a potential upside of 7% from current levels.
Read the original article on Business Insider