Goldman Sachs fund flow expert: Expects S&P 500 to hit a new high this week, triggering FOMO

Expert in studying fund flows, Scott Rubner, Managing Director of Goldman Sachs Global Markets, recently stated that strong fund inflows from corporate buybacks and systematic funds are expected to drive the S&P 500 index to a new all-time high this week, further increasing investors' fear of missing out (FOMO) sentiment.

In his latest report to clients on Monday, Rubner wrote:

We estimate that there is $17 billion of non-emotional demand per day this week coming from machine trading and corporate buybacks. There is a very positive three-week continuous trading window in the US stock market until September 16. Everyone is back in the market. Systematic strategies in US stocks are now overly exposed on the downside.

Goldman's model predicts that in the coming week, CTA funds will undergo a so-called "green sweep," meaning these funds may buy stocks regardless of market trends.

Goldman's corporate buyback team saw the highest demand last week, more than double that of the same period in 2023. Rubner expects strong buying to continue until the quarterly buyback window closes on September 13.

Goldman also mentioned that last week, global stock fund inflows from passive investors reached $20.361 billion, an increase of $4 billion per day.

Retail investors are not panicking, they are buying on dips. Rubner pointed out that retail investors did not show a significant imbalance in selling at the low point on August 5, and have since demonstrated diamond hands by buying on dips.

The put/call ratio dropped to 0.65, the lowest level since July 2021.

On Monday, the S&P 500 index opened slightly higher but fell during the day, with the intraday high on Monday less than 1% from the historical closing high set on July 16.

Rubner reiterated the view of Goldman's trading department that the dovish turn in interest rates by the Federal Reserve, reflected in Fed Chairman Powell's speech on Friday, gives the green light for further leverage, so painful trading in US stocks is upward until mid-September.

However, Rubner warned that stock demand may be exhausted in three weeks, indicating that the US stock market may fall again.

After the US stock market closes on Wednesday, the next major test for the market will come. NVIDIA will announce its second-quarter earnings, with market expectations of more than double the growth compared to the same period last year.

According to Rubner's calculations, the options market implies about a 9.35% stock price volatility for NVIDIA's earnings, equivalent to a market value fluctuation of about $29.8 billion. Rubner believes that given the sell-off in the US tech sector and hedge funds reducing their positions, NVIDIA's earnings threshold this quarter is much lower than in previous quarters. "Can you imagine what would happen if NVIDIA exceeds expectations after the US stock market closes on Wednesday?"

According to the Prime data from Goldman Sachs, fundamental investors have been selling while non-fundamental investors have been increasing their holdings. Global stocks have seen net selling for the 6th consecutive week, marking the largest net selling in two months. The selling pressure is driven by both long and short positions.

In terms of sectors, the information technology sector has seen net selling for the 4th consecutive week, reaching the largest net selling in two months, with 13 out of the past 16 weeks seeing selling. The selling pressure is driven by both long and short positions. Based on the Prime data, there has been a significant underweighting in information technology, with a 9.7% underweight compared to the MSCI Global Index, marking the lowest on record.

Rubner accurately predicted the pullback in the U.S. stock market at the end of this summer and advised clients to reduce their exposure to U.S. stocks before July 4th