Goldman Sachs fund flow expert Scott Rubner issued a "correction watch" on major U.S. stock indices ahead of the earnings reports of the tech "Big Seven", while analysts at BCA Research, a leading global independent investment research provider, told clients that U.S. stocks "will peak soon and a bear market will begin."

The BCA research team led by Arthur Budaghyan published a report for clients on Wednesday titled "Little Cash On The Sidelines." The report pointed out that the reason for the peak of stocks is that the level of "cash on the sidelines" of US retail investors and investment companies has hit a record low, which can only mean "lack of firepower."

Budashian begins his report by explaining how “cash on the sidelines” as a percentage of U.S. stock market value has fallen to a record low, indicating limited inflows into securities such as stocks and government bonds.

In view of this, Budashien said: "The US stock market will soon peak and the bear market will begin. Global asset allocators should overweight government bonds rather than stocks. In addition, there should be an appropriate allocation of US dollar cash."

To illustrate the situation with cash on the sidelines, Budashian said: "The total amount of investable funds is still large in absolute terms, but it has stagnated as the Fed has reduced its holdings." In addition, as the Fed's quantitative tightening policy has reduced the money supply, investable funds have also decreased.

The conclusion is that the low proportion of investable funds and the overvaluation of the US stock market may become a turning point for the AI ​​theme to drive the stock market up. At the same time, record stock buybacks by giant companies such as Apple, Microsoft, Alphabet and Nvidia are also the main factors maintaining high valuations. For example, Apple's buyback plan will account for 10% of buybacks in 2024. As mentioned earlier, Goldman Sachs' Rubner maintains a "correction watch" on the stock market.

Nvidia Corp. shares have surged sevenfold since ChatGPT launched in late 2022, helping to fuel a global rally led by large-cap stocks. But concerns about the sustainability of those gains, as well as geopolitical tensions and global monetary policy changes, are pushing the market to look for new drivers. Investors are selling off artificial intelligence giants and snapping up laggards in small-cap stocks and defensive plays.

Article forwarded from: Jinshi Data