Unfazed by the US stock market's decline after the election, Goldman Sachs fund flow expert: We have entered the best Q4 trading period in nearly a century

Nearly two weeks ago, Scott Rubner, a fund flow expert at Goldman Sachs who accurately predicted the summer stock market pullback, expressed optimism about the year-end performance of the US stock market in a report, forecasting that the S&P 500 Index will exceed 6000 points by the end of this year. Now, he has hinted that the US stock market is entering the best fourth quarter trading phase in nearly a century.

With only 44 trading days left in 2024, trading activities are entering the final sprint. In a report released on Monday, October 28th, Eastern Time, Rubner, Managing Director of the Global Markets Division at Goldman Sachs, revealed that he received more inquiries last weekend than at any other time this year. He warned traders to "beware of FOMO" and pointed out,

Today marks the beginning of the best fourth quarter trading period for the US stock market since 1928, as well as the best trading period during an election year. October 28th is one of the best trading days of the year, and it is a positive seasonal trading period with nine consecutive days of gains.

The report stated that on October 18th, the S&P 500 Index hit a historical high on the 47th trading day of the year, with the intraday record being about 20 points higher than the pre-market level on Monday. Rubner summarized the latest situation facing the US stock market as follows:

• At the end of this month, the largest sellers in the US stock market—pension funds and mutual funds at the end of their fiscal year—will reduce supply, while the largest buyers—listed companies conducting buybacks—will resume activity as the buyback window reopened on Monday, with 50% of companies in the open buyback window.
• Client inquiries have shifted from hedging the left tail to hedging the right tail.
• The so-called fear index VIX, which measures stock market volatility, fell on Monday, leaving room for further decline in volatility.
• The global consensus on Wall Street is that the US stock market will decline after the US election, with investors waiting for the drop, expected to be 5%.
• However, Rubner believes that this left tail scenario will not materialize. He stated that the US election will be a liquidation event for risk assets, and risk appetite and speculative actions may quickly return, possibly in previously unpopular industries and undervalued themes.

Rubner mentioned some key factors he is currently tracking in the report.

In terms of fund flows, Rubner pointed out that target date funds (TDFs), private wealth management (PWM) allocations, and retail investors typically rebalance their portfolios in January, April, and November. Investors holding US Treasury bonds may be looking for new destinations for their funds.

He provided some figures: Inflows into the stock market totaled $55 billion, the bond market $2.029 trillion, and cash $3.465 trillion for US assets since 2019. Global fund flows since 2019 amounted to $974 billion for stocks, $2.505 trillion for bonds, and $3.950 trillion in cash. Data since 1996 shows that November is usually the month when funds flow into the stock market, with inflows into stock mutual funds and ETFs in October still representing a negative share of total assets under managementAs of November, there has been a significant increase, turning positive, and the proportion is only second to January and April each year.

In terms of seasonality, although there are only 7 trading days left until the U.S. election, don't worry, Rubner said that everyone likes the year-end rebound, and there is data to prove it:

• Since 1928, the median return of the S&P 500 index from October 27th to December 31st each year is 5.22%; in election years since 1928, the median return of this index during the same period is 6.25%.
• Since 1985, the median return of the Nasdaq 100 index from October 27th to December 31st each year is 11.74%; in election years since 1985, the median return of this index during the same period is 7.17%.
• Since 1979, the median return of the Russell 2000 index from October 27th to December 31st each year is 7.99%; in election years since 1979, the median return of this index from October 15th to December 31st is 9.88%.

In terms of buybacks, U.S. companies are the largest buyers in the U.S. stock market. Goldman Sachs believes that the window for corporate buybacks will open on Monday, October 28th. Data from the Goldman Sachs trading desk shows that since 2007, November has historically been the month with the largest buyback volume in a year, accounting for 10.40% of the annual buyback volume. Goldman Sachs estimates that the value of repurchased stocks executed in 2024 will be $960 billion, with the value of stock buybacks in November being $100 billion.

Rubner stated that he estimates a daily volume-weighted average price demand of approximately $6 billion for the 19 trading days in November this year, which may also have a greater potential demand impact on days with lower liquidity during the holiday season.

In terms of mutual funds, the largest sellers of U.S. stocks, mutual funds, will fade out at the end of this month, as a total of 756 mutual funds with assets totaling $1.853 trillion will end their fiscal year on October 31, 2024.

Rubner also mentioned that he will closely monitor Goldman Sachs' momentum factor, as November to January is the worst three months for momentum performance in a year. Rubner raised a question: if AI winners dominate when the 2024 fiscal year report is released, will there be enough time to find winners for 2025 after the rotation starting from November 1st?

Regarding retail investors, Rubner noted that activity on the message board by retail investors has started to increase again, and he is monitoring the retail investor group through options and ETFs.

In terms of election day volatility, Rubner stated that the implied trend of the S&P 500 index on election day has hit a new low in the cycle.

Regarding global fixed income, Rubner mentioned that the global fixed income exposure of CTAs has significantly improved. Goldman Sachs' futures sales estimated that CTAs sold bonds worth $109 billion in the past week, $309 billion in the past month, and positions returned to neutral levels for the first time in a monthIn addition, Rubner mentioned that the main new trend of clients reflected in Goldman Sachs' global prime brokerage business is risk reduction. Hedge funds net sold US stocks this week, accounting for about a quarter of the recent long positions, driven almost entirely by macro products. The nominal short selling volume of macro products this week is the largest since early January, indicating an increase in hedge activity