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Goldman Sachs’ trading desk expects the stock market to hit record highs in the next four weeks, followed by a period of decline.
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The low volatility environment and corporate buybacks are what drive Goldman’s bullish outlook through mid-September.
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“We just saw one of the largest and fastest liquidations I have ever seen,” wrote Scott Rubner of Goldman Sachs.
Investors should brace for new record highs in the stock market over the next four weeks, but then prepare to pull back.
This is according to a note on Monday from Goldman Sachs Trading Desk, led by Managing Director Scott Rubner.
According to Rubner, the stock market is entering a “very positive four-week stock trading window” which indicates that “pain trading for stocks is higher.”
“The two-week global holiday started on Friday at 4 p.m. Expectations are high to go to the beach for a Labor Day barbecue,” Rubner said, stressing that the low-volatility markets that are so common during the late summer weeks are usually bullish for stock prices.
This new low-volatility environment in the stock market comes after The CBOE Volatility Index has dropped by a record 62%, This represents the biggest drop in Wall Street’s fear gauge ever in nine days.
“We just had one of the biggest and fastest pullbacks I’ve ever seen,” Rubner said, noting that professional trend followers who got out of stocks during the early August selloff are now likely to be back in long mode.
Other buyers of stocks over the next few weeks include companies that have approved share buyback programs.
According to Rubner, with the corporate stock blackout period starting on September 13 for about 50% of companies, there will be a lot of stock buying between now and then.
“The August-September corporate buyback period is historically strong. This two-month period is the second-best of the year at 20.7% of executions,” Rubner said, adding that the bank estimates that about $1 trillion in share buybacks will be executed this year.
with Standard & Poor’s 500 Although the index is down less than 1.4% from its record high, it won’t take long for it to reach record highs in the near term.
When to sell stocks
But while Rubner remains optimistic, he still expects the stock market to be volatile and is not certain about further gains after September 16.
“I’m bullish until September 16th. That’s when the seasons change. The second half of September is the worst two-week trading period of the year. I won’t continue trading during that period,” Rubner said.
The call that Rubner made is of great importance because He made an accurate prediction about the stock market in early July, When he said stocks were poised to rally in the first two weeks of July before entering a period of volatility in the second half of the month, And that’s exactly what happened.
“The second half of September will be a tough trading environment (especially ahead of the election),” Rubner said.
When should you repurchase?
While Rubner expects a sharp rise in stock prices over the next four weeks, followed by a period of negative volatility in the second half of September, he still expects the stock market to end the year at record highs.
“S&P $5,000 – new highs in Q4, led by November and December,” Rubner said, adding that A record $7.3 trillion will flow from U.S. money market funds into stocks. And bonds after the US elections in early November.
The S&P 500 rising to 6,000 represents a potential upside of 7% from current levels.
Read the original article on Business Insider