Contrarian Sentiment
Stock Market Outlook: 4 Reasons for Continued Rally to Record Highs, Says Goldman Sachs
Corporate Stock Buybacks
Goldman Sachs' John Flood predicts further gains for the US stock market, despite recent all-time highs. With several market tailwinds and seasonal patterns in play, bullish sentiment is expected to persist.
1. Late April Surge:
Flood anticipates a surge in late April, a historical trend where investors sell off stocks ahead of Tax Day to cover taxes, leading to a temporary market dip followed by a rebound later in the month. He notes that retail investors typically sell stocks to meet tax obligations, resulting in a dip around Tax Day, followed by a subsequent rally.
2. Corporate Stock Buybacks:
Publicly-traded companies continue to be significant buyers of their own stocks, creating a squeeze on stock supply and driving up market demand. Goldman Sachs' research indicates an estimated $925 billion of stock repurchases this year, contributing to the potential for a stock market rally.
3. Inflow of Funds:
Money market funds have witnessed a substantial inflow of $1.6 trillion since 2023, suggesting ample liquidity available for investment in the stock market. Flood interprets this as an indication that there is still considerable "dry powder" for investors to deploy into equities, supporting future market confidence.
4. Contrarian Sentiment:
Despite the market's recent highs, Flood observes that sentiment indicators do not signal peak bullishness. Hedge funds have been net sellers of stocks and have increased shorting activity in recent weeks, suggesting a cautious stance among institutional investors. Contrarian indicators suggest that when sentiment becomes excessively bullish, it may signal a potential downturn in the market. However, Flood believes that the market has not reached this point yet, indicating potential room for further upside.