August is poised to kick off a painful two-week stretch for US stocks as money pours out of equities, according to Goldman Sachs Group Inc.’s Scott Rubner.
“The pain trade has shifted from the upside to the downside,” said the firm’s global markets division managing director and tactical specialist. “The buyers are full and running out of ammo after the best trading days of the year are now behind us.”
The S&P 500 Index is on pace for its 35th record since early January, fueled by bets that the Federal Reserve will implement roughly two rate cuts this year. Analysts are also modeling strong corporate results with second-quarter earnings expected to grow around 9%, the most since the first quarter of 2022, according to Bloomberg Intelligence.
To Rubner, the bar for corporate results is high as those lofty expectations are already baked in, meaning the earnings season is “no longer a tailwind for stocks.” On top of that, systematic funds positioning has reached such an elevated level that any spike in volatility or earnings miss, especially from “highly owned market-capitalization weights, may force non-fundamental sellers to reduce risk,” he wrote in a Monday note to clients.
August has historically been the worst month of the year for equity flows from passive investors and mutual funds. There are no predicted inflows in August as the capital has already been deployed for the third quarter after investors put the second-largest equity inflow on record in the first half of 2024, Rubner wrote.
His analysis of data going back to 1928 show that the S&P 500 reaches a “local top” in mid-July before embarking on what’s usually the fifth worst two-week period of the year in early August.
“We are ending the best trading period of the year,” he wrote, noting that this is his last bullish US equity note — for now.
This article was provided by Bloomberg News.