Last month, Scott Rubner, a Goldman Sachs research flow expert who accurately predicted the pullback of U.S. stocks by the end of this summer, predicted that by the end of this year, U.S. stocks would melt up, and in recent reports, Rubner was further bullish, expecting that by Halloween on November 1, the S&P 500 index will not rise to 6,000 points, and by the end of the year, it will far exceed 6,000 points.
In the report, Rubner, managing director of Goldman Sachs' global markets division, wrote:
"The stock market sell-off was canceled, and the year-end rally began to resonate, with clients moving from left-tail hedging to right-tail hedging."
"Given the so-called 'FOMU', i.e. concerns about the underperformance of benchmark equity indices, institutional investors are now being forced into the market."
Rubner cites more than 90 years of data to prove that U.S. stocks tend to perform better from mid-October to the end of October. Since 1928, the S&P 500 has returned an average of 5.17% from October 15 to December 31, which means that by the end of the year, the S&P will be up to 6,160 points from Monday's close of nearly 5,860 points.
In every election year since 1928, the S&P 500 has returned an average of 7.04% from October 15 to December 31. Based on this calculation, on the basis of Monday's close, the S&P will rise to 6,270 points by the end of the year.
Switching to the Nasdaq 100 index, since 1985, from October 15 to December 31, the index has returned an average of 12.08%, based on this calculation, the Nasdaq 100 will rise to 22,900 points by the end of the year on the basis of this Monday's close. However, in election years since 1985, the index underperformed non-election years from October 15 to December 31, with an average return of 7.29%.
Since 1979, the Russell 2000 index has returned an average of 7.92% from October 15 to December 31, and based on this calculation, the index will rise to 2,425 points by the end of the year on the basis of Monday's close. In election years since 1979, the index has returned more on average from October 15 to December 31, reaching 10.08%.
Rubner cited the winners in the seasonal year-end rally, noting that cyclical stocks tend to outperform defensive stocks in the fourth quarter of each year. He also mentioned some factors that affect the market. Among them, next week will be the "Super Bowl" of this earnings season, as the constituent companies, which account for about 37% of the S&P 500's market capitalization, are all due to report earnings.
Rubner's report said that from a flow perspective, U.S. equities are entering a positive trading environment. One of the manifestations is that Goldman Sachs estimates that the quiet period for share buybacks of listed companies will end on October 25. Listed companies, which have become the largest buyers of U.S. stocks this year, will see the highest share of buybacks in November and December, with buybacks expected to reach $6 billion per day. Goldman Sachs estimates that buyback executions in November and December accounted for 21.1% of the year.
Another manifestation is that before Halloween, mutual funds, the largest sellers of US stocks, gradually withdrew. Rubner previously reported that October was the last month of the fiscal year for most mutual funds. October falls into the end of the fiscal year that could adversely affect price action for popular mutual funds, or have already done so, as underperforming funds in the year-to-date may sell off due to tax losses, and funds that have outperformed in the year-to-date may reduce their holdings or take profits.
In the report, Rubner said that all 756 mutual funds with a combined asset value of $1.853 trillion are ending the current fiscal year on October 31, 2024.
In addition, data since 1996 show that United States households tend to buy stocks in November each year, and the proportion of inflows into equity mutual funds and ETFs increases significantly in November, accounting for only January and April of each year's total assets under management, while October is the outflow.
Regarding the upcoming United States election in November, Rubner reported that after the election, volatility will reset in November, which may lead to systematic strategies (volatility control) and multi-manager fund re-leveraging, and even some short-term opportunistic YOLO mentality will have positive trading performance.
Wall Street News recently mentioned that the United States non-farm payrolls growth announced earlier this month was strong, and the Citi report believes that the market is refocusing on reflation expectations, and as the United States election approaches, political factors are gradually becoming an important variable affecting the market, wary of the impact of Trump's victory. In this report, Rubner also mentioned that the Trump deal may be making a comeback, saying that Goldman Sachs' trading desk is answering questions about the best implementation plan. This is a new move that has amplified the rally in the stock market.
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