Goldman Sachs fund flow expert: Bullish on US stocks tactically until mid-September, selling will attract bottom-fishing buyers

Expert in studying fund flows, Scott Rubner, Managing Director of Goldman Sachs Global Markets Division, accurately predicted the U.S. stock market correction at the end of this summer. He had advised clients to reduce their exposure to U.S. stocks before July 4th. About a week ago, he mentioned a shift to a technical bullish stance by the end of August, and recently expressed a bullish view, expecting momentum traders and increased corporate buybacks to drive U.S. stocks higher in the next four weeks.

In a report released on Monday, August 19th, Rubner stated, "This is an unruly market," and he anticipates the four weeks leading up to September 16th to be a very favorable window for stock trading. His report stated:

"With the global two-week holiday starting at 4 p.m. last Friday, the pain of stock trading is higher. The threshold for bearishness at the Labor Day barbecue is high, which is a new understanding."

Rubner listed some bullish factors for U.S. stocks: Commodity Trading Advisors (CTAs) re-leveraging, funds targeting volatility/volatility control, closing of put options, and corporate buyback demand. In summary, current positions and fund flows "will be tailwinds, as sellers are out of ammunition."

Rubner also pointed out that the second half of September is the worst two-week trading period of the year, and during that time, he will not maintain a bullish view as he did before mid-September.

Last week, Wall Street News mentioned that Rubner noted that in the past month, systematic funds, which buy stocks based on market signals and volatility trends rather than company fundamentals, have been selling U.S. stocks in large quantities, with the amount of U.S. dollars sold reaching a four-year high. These trend-following systematic funds are seeing inflows, which could drive the stock market higher. Rubner's report on Monday stated that the long positions of systematic funds decreased from $450 billion in July to $250 billion on Monday, and they will start re-leveraging, with this fund flow demand having a greater impact due to poor liquidity in August.

The sudden sell-off in U.S. stocks earlier this month has attracted bargain hunters. Rubner believes that this risk appetite momentum will not stop here: after the turbulent period leading up to the U.S. presidential election in November, the S&P 500 index may rebound to 6000 points by the end of this year, an increase of about 8% from last Friday's close.

Rubner expects CTAs to experience a so-called "green sweep," meaning they may buy stocks regardless of market direction. Following the largest nine-day volatility drop in history for the "fear index" - the VIX that measures U.S. stock volatility at the Chicago Board Options Exchange - volatility control funds positioned opposite to actual volatility are expected to increase exposure.

Moreover, traders re-establishing a long risk factor Gamma should act as a market buffer, as this means traders are essentially going against the trend, buying when stock prices fall and selling when they rise, so there will always be buyers looking to buy the dip whenever U.S. stocks are sold off Rubner's report states that in the past three weeks, traders' Gamma has changed from long to short and then back to long, with a total change of up to $16 billion, "this is the largest scale change in our dataset."

Corporate demand will also drive the U.S. stock market higher. Goldman Sachs estimates that by September 13, about half of the companies will enter the quiet period where they cannot repurchase, the daily repurchase power of U.S. listed companies will reach $6.62 billion. For the whole year, the total amount of corporate repurchase authorization will reach $1.15 trillion, and the execution amount will reach $960 billion.

In addition, Rubner also predicts that there will be more cash flow from the money market into the stock market. Currently, assets managed by the U.S. money market amount to around $7.3 trillion. "Money market yields are starting to decline significantly, after the U.S. election, this large amount of funds will start to flow into other markets."

In summary, Rubner's benchmark forecast is:

• With technical pressure easing, there are buying opportunities for U.S. stocks in the short term;
• The trading environment in late September will be very tricky, especially before the U.S. election;
• The S&P index will hit new highs in the fourth quarter, leading in November and December;
• Cash from the money market will flow into the stock market, off-market cash has already peaked, and will start flowing into other markets after the election, U.S. investment-grade credit bonds are the first choice, followed by high-quality and low-volatility individual stocks