MW 'FOMO' could help drive stocks higher after the election, one top Goldman Sachs strategist says
By Joseph Adinolfi
Investors will likely scramble to chase the market higher
The upcoming U.S. election has helped to inspire a sense of foreboding on Wall Street, judging by the still-elevated level of the Cboe Volatility Index, otherwise known as the VIX or the stock market's "fear gauge."
But the short-lived pullback that many investors are bracing for - or perhaps even hoping for - may never materialize, according to Scott Rubner, a managing director at Goldman Sachs Group who publishes market commentary from his perch on one of the bank's trading desks.
Instead of a selloff, Rubner expects stocks will continue to power higher through the end of the year, in keeping with seasonal patters that show November and December have historically been associated with the strongest returns.
If anything, the election - which will take place on Nov. 5 - could catalyze a "clearing event for risk assets" that leads to an immediate pop, as "FOMO," or "fear of missing out," inspires investors to chase the market higher.
In such a scenario, Rubner would expect to see the greatest gains for out-of-favor themes and sectors, which he says are currently underowned.
But over the two months ahead, Rubner believes corporate buybacks and seasonal shifts in investors' positioning could have a bigger impact.
For starters, Rubner said that target-date funds, retail investors and private-wealth managers typically rebalance their portfolios in January, April and November. Investors who have Treasury bills rolling off may be looking to reinvest the proceeds somewhere else, and the stock market looks like a logical place to start.
Assuming stocks behave like they have in the past, the final two months of the year could prove very fruitful. Since 1928, the median S&P 500 return for the period between Oct. 27 and Dec. 31 has been 5.2%. During election years, that has climbed to 6.3%.
Corporate buybacks could also help boost stocks now that the window for companies to repurchase their shares has opened once again.
November has historically been the busiest month for this type of trading, according to data from Goldman's trading desk, with more than $100 billion set to pour into the stock market due to buybacks alone, if history is any guide.
Mutual funds and pension funds will also likely pull back on some of their selling as their fiscal years come to an end in late October.
Rubner has also noted that retail trading activity has started to increase again in popular names like Nvidia Corp. $(NVDA)$ and Tesla Inc. $(TSLA)$. This could add to the mosaic of buyers, assuming it continues.
After fielding a torrent of client questions over the weekend, Rubner said he noticed one consistent theme: Investors have shifted away from asking how to hedge against a selloff and toward how best to capitalize on more gains before the end of the year.
Rubner has been bullish on stocks for a while now. He said earlier this month that he was worried his 6,000 year-end target for the S&P 500 might not be high enough. The index only needs to rise another 3% before the end of the year to hit Rubner's target.
The S&P 500 SPX gained 15.40 points, or 0.3%, to finish Monday at 5,823.52, according to FactSet data. Meanwhile, the Dow Jones Industrial Average DJIA gained 273.17 points, or 0.7%, to close at 42,387.57.
The Nasdaq Composite COMP gained 48.58 points, or 0.3%, to 18,567.19.
The VIX VIX stood at 19.73, down nearly 3% on the day.
-Joseph Adinolfi
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(END) Dow Jones Newswires
October 28, 2024 16:34 ET (20:34 GMT)
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