Scott Rubner, managing director of Goldman Sachs' global markets division, said that after a turbulent few weeks until late October, U.S. stocks are likely to rebound at the end of the year, pushing the S&P 500 index to possibly break through the 6,000 level.

“While I am bullish on a year-end rally starting October 28, I am concerned that my 6,000 price target is too low,” Rubner wrote in a note to clients Wednesday.

He said seasonal tailwinds in the market are a key pillar of that forecast. According to his calculations, data going back to 1928 show that the S&P 500 has risen about 4% on average from Oct. 27 through the end of the year. On top of that, he said, stocks tend to rise after U.S. presidential elections as investors move cash into stocks after risks surrounding the election fade.

Rubner, Goldman's money flow expert, has a year-end target that differs from the 5,600 forecast of David Kostin, Goldman's chief U.S. equity strategist, who expects the S&P 500 to rise to 6,000 by 2025.

Rubner also noted that while a recent period of volatility makes him bearish on stocks in the coming weeks, some other headwinds could fade later this month.

For example, stock buybacks are expected to resume on October 25, when the market exits the earnings-related buyback ban, and U.S. companies are expected to become buyers, supporting demand for U.S. stocks.

“The largest buyer of U.S. stocks in 2024 will see their ability to repurchase stocks reduced by 35% during the buyback ban period,” he wrote.

Rubner also pointed out that demand for put options in the run-up to the U.S. election could also further boost U.S. stocks.

In addition, the upcoming corporate earnings season could also push stock prices higher, but only if the results meet analysts’ high expectations. “The ‘Super Bowl’ of U.S. corporate earnings will take place the week of Oct. 25, with 61% of the S&P 500’s market value reporting earnings two weeks before the election,” Rubner noted.

However, Rubner expects investors to experience a period of high volatility over the next three weeks before the expected rally.

One reason for this is that the gamma of the S&P 500 has fallen by $14 billion in the past two days, the largest two-day drop in Goldman's data set. As gamma decreases, market traders no longer need to buy stocks on declines to keep their positions neutral. This means that the market now has more freedom to fluctuate.

Article forwarded from: Jinshi Data