U.S. stocks rise at the end of the year starting today! Goldman Sachs' capital flow experts expect institutions to have a FOMO psychological cycle

Scott Rubner, an expert in tracking fund flows at Goldman Sachs, predicted last month that by the end of this year, the S&P 500 Index will far exceed 6,000 points. Last week, he stated that U.S. stocks have entered the best fourth-quarter trading phase in nearly a century. Following Trump's victory, Rubner again proclaimed that the upward trend in U.S. stocks would begin on Wednesday, November 6, and could rise even higher than investors expect. After the decline in U.S. stocks in October, he does not rule out a larger market rebound led by a rotation of funds.

Rubner noted that during this year's best trading season, the mechanical rebalancing of funds will create a feedback loop driven by institutional fears of missing out (FOMO). This Wednesday, the five major fund flows tracked by Rubner include:

Unwinding of election hedges; re-leveraging; buybacks; FOMO; and Vanna, which measures changes in Delta due to variations in implied volatility of options.

Rubner believes that the unwinding of short-term election hedges creates demand for synthetic options. He mentioned that on Monday, the Chicago Board Options Exchange (CBOE) put/call ratio reached its highest level since September 24, 2021. The pace of re-leveraging has slowed, and there is a high level of volatility control and risk parity re-leveraging.

Regarding buybacks, Rubner reiterated that corporations are the number one buyers of U.S. stocks. Previously, Rubner reported that Goldman Sachs believes the window for corporate buybacks will open on Monday, October 28. Data from Goldman Sachs' trading desk shows that November has historically been the month with the largest buyback volume of the year since 2007, accounting for 10.40% of annual buyback volume. Goldman Sachs estimates that the value of stocks repurchased in 2024 will be $960 billion, with the value of stock buybacks in November reaching $100 billion.

Rubner also reaffirmed the above data and mentioned again that he estimates the daily volume-weighted average price demand for the 19 trading days in November to be about $6 billion, which could have a greater potential demand impact on days with lower liquidity during the holiday period.

In terms of institutional trading, Rubner noted that institutional portfolios showed signs of continued decline on election night, November 5. Goldman Sachs' prime brokerage (PB) team stated that the total portfolio exposure of fundamental strategy equity fund managers in the U.S. market has dropped to its lowest level since March 2023.

Regarding seasonal factors, Rubner used nearly a century's worth of data to show that U.S. stocks have historically risen from November to December each year, with the S&P's return exceeding 3% during this period in election years:

• Since 1928, from November 5 to December 31, the average return of the S&P 500 Index has been 2.68%; in election years since 1928, from November 5 to December 31, the average return of the index has been 3.38%

• Since 1985, the average return of the Nasdaq 100 Index from November 5 to December 31 has been 5.53%; in election years since 1985, the average return of the index from November 5 to December 31 has been 0.79%.

• Since 1979, the average return of the Russell 2000 Index from November 5 to December 31 has been 5.7%; in election years since 1979, the average return of the index from October 15 to December 31 has been 7.94%.