The S&P 500 has already set 46 closing records this year, and according to the trading desk at Goldman Sachs Group Inc., that rally is primed to extend into the final months of 2024.
Scott Rubner, a managing director for global markets and tactical specialist at the bank, estimates the US stocks benchmark can finish the year “well north of 6,000.” According to his calculations of data going back to 1928, the historical median of S&P 500 returns from Oct. 15 to Dec. 31 is 5.17%. In election years median returns are even higher, just over 7%, implying a year-end level of 6,270.
Statistical data compiled by Bloomberg would seem to back a bullish view of the fourth quarter. Out of the stock composite’s nearly century-long history, only 25 years since 1928 had a negative return in the fourth quarter. But, the variation of historical returns is wide; 1998 notched a 21% gain while the final leg of 1929 saw the stocks gauge decline by a disastrous 29%.
Rubner, who expected a selloff ahead of the US presidential election, is now changing his call. In late September, he saw investors selling favored long positions and buying S&P 500 put spreads driven by concerns about unfavorable near-term seasonality and technical positioning. But the sentiment has since shifted after gains in US stocks compelled fund managers to join in the buying.
“The equity market selloff is canceled, and a year-end rally is starting to resonate with clients shifting from hedging from the left-tail to the right-tail as institutional investors are getting forced into the market right now,” Rubner wrote in a note to clients Tuesday. Professional investors are growing concerned about materially underperforming their benchmarks, he added.
For its part, Corporate America will resume its outsize role as a buyer of equities when the earnings blackout window for share repurchases reopens on Oct. 25, according to Rubner. Mutual funds that close their fiscal years at the end of October will likely shift from selling for tax reasons to potentially buying the rally that’s driven a 22% gain in the S&P 500 this year. Households have also traditionally been net buyers of equities in November, he noted.
Trend-following systematic funds are also potential buyers. Volatility control funds, which typically buy stocks during periods of calm, will likely resume buying after the November election passes. “If vol resets after the election, there is room to gross up,” he wrote.
On top of that, options market positioning also points to the “health of the rally,” Rubner wrote, referring to increasing gamma — a measure of volatility in derivatives that can act as a market buffer when dealers are buying the dip.
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