Everything in the US stock market seems to be great before the end of the year

There are only 18 trading days left in the US stock market for 2024. Will there be another surge?

So far this year, the US stock market has set 55 historical highs. Goldman Sachs' liquidity expert Scott Rubner predicts in his latest client report that the 56th is not far off, as the market is experiencing record inflows of funds at year-end, retail investors are returning to the market after the Thanksgiving holiday, and there is strong demand for corporate stock buybacks along with low market volatility. The US stock market is expected to rise further—indeed, in the past 11 trading days, 10 days have seen gains. Rubner wrote:

“My seasonal liquidity gauge is accelerating, and year-end FOMO (Fear of Missing Out) is starting to kick in.”

Rubner believes there are seven key dynamics in the US stock market as we close out 2024:

1. Strong seasonal performance in the US stock market
2. Record inflows of funds
3. The rise of passive funds
4. Strong demand for corporate stock buybacks will remain until December 20
5. Current market volatility is low
6. Retail investors have returned from the Thanksgiving holiday
7. US stock market liquidity is currently performing well but typically declines in the last two weeks of the year

1. Strong seasonal performance in the US stock market

Since 1928, the median monthly return of the S&P 500 in December is 2.04%, and this positive seasonal performance typically occurs in the latter half of December, accompanied by a low liquidity trading environment.

In addition to the "December Effect," there is also the "January Effect," which refers to the influx of the world's largest funds into the US stock market in the first few weeks of each year. Since 1928, the median monthly return of the S&P 500 in December and January is 3.83%.

Rubner stated, “After the 'January Effect' ends, Goldman Sachs expects to issue a bearish report on the US stock market in mid-January, but that is a matter for later.”

2. Record inflows of funds

Rubner pointed out that there are currently more buyers than sellers in the US stock market.

In the past four weeks, the US stock market recorded $141.08 billion in inflows, setting a historical monthly inflow record, while during the same period, $8 billion flowed out of stocks and funds outside the US.

3. The rise of passive funds

So far in 2024, US passive funds have seen inflows of $589.4 billion, while active funds have experienced outflows of $210.2 billion. Over the past decade, US passive funds have accumulated inflows of $2.8 trillion, while active funds have seen outflows of $3 trillion, resulting in a net outflow of $200 billion.

4. Strong demand for corporate stock buybacks will remain until December 20

The "blackout window" for corporate buybacks in the US will begin on December 20. Rubner noted that November and December are the two months with the strongest demand for corporate stock buybacks each year.As of 2024, the total amount of corporate stock repurchase authorizations is $1.14 trillion, an increase of about 17% compared to the same period in 2023. Goldman Sachs predicts that the total amount of stock repurchases by U.S. companies will reach $1.07 trillion in 2025. Rubner wrote:

"Are stock certificates a scarce resource? Absolutely."

This implies that stocks will become scarce after a large number of repurchases, leading to appreciation.

5. Current market volatility is low

Rubner estimates that traders hold gamma positions worth about $10 billion for every 1% market fluctuation, which is one of the highest gamma positions observed by Goldman Sachs to date and should help buffer the market's weakness.

Additionally, the market has already absorbed the premiums related to the election, and volatility has dropped to its lowest level since July, with the spot VIX index at 13.09.

If there are no unexpected shocks in the coming weeks, Rubner expects that demand from this market group will moderately increase, while supply remains relatively limited.

6. Retail investors have returned from the Thanksgiving holiday

Today, the Goldman Sachs Equity Panic Index (GS Equity Panic Index) hit a new low, and call option trading reached historical highs, reflecting a resurgence in retail trading activity. Rubner wrote:

"I’ve started checking Reddit every morning again to see the names of the hot stocks for the day."

7. U.S. stock market liquidity is currently performing well, but typically declines in the last two weeks of the year

The top book liquidity for the S&P 500 today is $21 million, reaching its highest level in six months.

However, Rubner noted that liquidity typically declines in the last two weeks of the year, so we may see greater market volatility and more significant trading impacts subsequently.