Goldman Sachs fund flow expert: Worried that the year-end S&P 6000 target is too low, but tactically bearish for the next three weeks of this month

Accurately predicting the research fund flow expert Scott Rubner, who predicted the U.S. stock market correction at the end of this summer, expects that by the end of this year, the U.S. stock market's upward trend may exceed his expectations, with the S&P 500 index potentially breaking through the target level of 6000 points by year-end. However, in the coming weeks of this month, the U.S. stock market may experience a decline, while he reiterates his optimism for the Chinese stock market.

In a report released on Wednesday, October 2nd, Eastern Time, by Rubner, Managing Director of the Global Markets Division at Goldman Sachs, he wrote:

"I am bullish on the U.S. stock market starting from the year-end rebound on October 28th, and I am concerned that my (set for the S&P 500) target of 6000 points may be too low."

Rubner stated that the seasonal tailwind of the market is a key pillar of his U.S. stock market forecast. According to his estimates, data since 1928 shows that the S&P 500 index has averaged an annual increase of about 4% from October 27th to year-end. In addition, he pointed out that in election years, after the U.S. presidential election, as investors shift cash into the stock market after the election risks subside, the U.S. stock market tends to rise.

However, Rubner warned that the year-end rise in the U.S. stock market comes after a period of turbulence, and some unfavorable factors may diminish later this month. In the coming weeks, he is bearish on the U.S. stock market. The report stated:

"I am tactically bearish on the U.S. stock market for the next three weeks."

Rubner mentioned that he is prepared for greater volatility in the coming weeks, as well as excessive trading in response to daily headlines and themes in the market. The U.S. stock market faces a mismatch of supply and demand, leaning towards the downside. After the volatility in the next three weeks subsides, the supply of U.S. stocks may exceed demand.

He noted that in the past two days, the Gamma of the S&P 500 index has dropped by $14 billion, the largest two-day decline on record in the Goldman Sachs dataset. This means that the market now has more freedom to fluctuate. "I believe the market is moving downwards." After the significant Gamma drop, market makers no longer need to buy stocks on dips and will maintain a neutral position.

In September, Wall Street News mentioned that Rubner's report for the month stated that listed companies have been the largest buyers in the U.S. stock market this year. Goldman Sachs estimates that the quiet period for stock buybacks by listed companies will end on October 25th.

Rubner's report once again mentioned the impact of corporate buybacks on the U.S. stock market, reiterating that the recent deadline for the quiet period for buybacks is October 25th, and pointing out that during the quiet period, the authorized buyback size of companies will decrease by 35%. As of September 20th, the authorized buyback size for this year has reached $974 billion. The months of November and December at the year-end are the two months with the highest proportion of buyback executions in a year.

Therefore, after the buyback window reopens on October 25th, listed companies are expected to once again become buyers, supporting the demand for U.S. stocks.

Rubner's previous reports mentioned that October, being the end of the fiscal year, may have a negative impact on the price trend of popular mutual funds, as poorly performing funds since the beginning of the year may sell off due to tax losses, while funds with excellent performance may reduce holdings or take profits The latest Rubner report states that a large number of mutual funds have their fiscal year end on Halloween, October 31st this year. According to Goldman Sachs research, there are a total of 756 mutual funds with their fiscal year end on October 31st, collectively managing assets worth $1.853 trillion.

The report also mentions the impact of the earnings season, likening the week ending on October 25th to the "Super Bowl" of the US stock market earnings season, as 61% of the S&P 500 market capitalization components will release their earnings reports in the two weeks before the US election. Wall Street's expectations for corporate earnings are high, especially for the tech giants known as the "Big Seven" - Apple, Microsoft, Nvidia, Google's parent company Alphabet, Amazon, Meta (formerly Facebook), and Tesla.

Referring to the seasonal rebound in the fourth quarter, the Rubner report points out that by analyzing data dating back to 1928, it can be observed that the S&P 500 and other major US stock indices typically start rebounding from October 27th.

Lastly, Rubner reiterates its positive outlook on the Chinese stock market in the report, emphasizing "China trade" and stating "this time is different" following the September report. The report states:

"I have never seen such a strong daily demand for Chinese stocks: I don't even think we have returned to benchmark index weights."