Goldman Sachs strategist: The downside threshold for US stocks remains high, with the potential to continue rising in the next four weeks

According to the Zhitong Finance APP, the trading department of Goldman Sachs stated that the surge in momentum trading and corporate buybacks is expected to drive the U.S. stock market higher in the next four weeks.

Scott Rubner, the Global Market Director and Tactical Expert of the bank, wrote in a report on Monday: "The degree of painful trading in the stock market is higher, and it is very difficult to maintain a bearish threshold at the Labor Day barbecue party." Painful trading refers to the market occasionally imposing maximum punishment on the majority of investors, that is, when a popular asset class or widely followed investment strategy experiences an unexpected turn, catching most investors off guard, painful trading occurs.

Rubner correctly predicted a market pullback at the end of summer and advised reducing exposure to U.S. stocks after July 4th at the end of June, but he has now turned tactically bullish, stating that current positions and fund flows "will act as a booster as sellers have run out of ammunition."

Funds from so-called trend-tracking systematic funds may drive the stock market higher. These funds have re-leveraged after reducing their total long exposure from $450 billion in July to the current $250 billion. Given the impact of decreased liquidity in August, this demand flow of funds will have a greater impact.

This is good news for investors trying to figure out the direction of the stock market. The sudden sell-off in early August attracted buying on dips, providing momentum for the biggest buying opportunity of the year. But Rubner believes that this risk appetite momentum will not stop there: after a period of volatility before the November presidential election, the S&P 500 index may rebound to 6,000 points by the end of the year, up about 8% from last Friday's closing price.

Rubner believes that Commodity Trading Advisors (CTAs) will conduct a so-called "green sweep," meaning that these funds are likely to buy stocks regardless of market trends. After the Chicago Options Exchange Volatility Index experienced the largest nine-day volatility drop in history, volatility control funds that have positions opposite to actual volatility are expected to increase exposure.

Most importantly, traders are buying again, which means they are essentially going against the mainstream trend, buying when stock prices fall and selling when they rise. This should act as a market buffer, with investors buying on dips in the event of a sell-off. In the past three weeks, traders' gamma trading has seen changes of up to $16 billion, shifting from long to short and back to long positions. "This is the largest-scale change in our dataset," Rubner wrote.

Corporate demand will also play a role in driving the market. Goldman Sachs estimates that before about 50% of companies close their corporate buyback windows on September 13th, the daily buyback intensity is $6.62 billion. The bank estimates that by 2024, the total authorized amount for corporate buybacks will be $1.15 trillion, with an executed amount of $960 billion He also expects more funds to flow from the money market to the stock market. He pointed out that the assets currently managed in the US money market are about $7.3 trillion. "Money market yields are beginning to decline significantly, and after the US election, this mountain of money will start to be deployed elsewhere."

However, there may be more declines in the future. Rubner warned that after September 16, the stock market may experience a negative trend, as historically, the second half of September is one of the worst two-week trading periods of the year.

After the S&P 500 index achieved its best single-week performance of the year last Friday, the US stock market saw a slight increase on Monday. Traders are now turning their attention to the Federal Reserve's annual meeting in Jackson Hole to look for clues about interest rate cuts. In addition, traders will also focus on the financial reports of relevant retailers, which may provide more signs of the health of the US consumer