Scott Rubner, Managing Director of Goldman Sachs Global Markets, an expert in researching fund flows, recently stated that the strong inflow of funds from corporate buybacks and systematic funds is expected to drive the S&P 500 index to a new all-time high this week, further increasing investors' fear of missing out (FOMO).

Rubner wrote in his latest report to clients on Monday:

We estimate that there is $17 billion of non-emotional demand from machine trading and corporate buybacks every day this week. There is a very positive three-week continuity in the U.S. stock market until September 16. Everyone is back in the market. The systemic strategies of the U.S. stocks are now overly exposed on the downside.

Goldman Sachs' model predicts that over the next week, CTA funds will engage in the so-called "green sweep," which means that these funds may buy stocks regardless of market trends.

Goldman Sachs' corporate buyback team saw the strongest demand of the year last week, more than double that of the same period in 2023. Rubner expects strong buying to continue until the quarter buyback window closes on September 13.

Goldman Sachs also mentioned that last week, global equity fund inflows from passive investors reached 20.361 billion USD, an increase of 4 billion USD per day.

Retail investors are not panicking, they are buying on the dips. Rubner pointed out that retail investors did not show a significant selling imbalance at the low point on August 5, and have since demonstrated a diamond hands approach through buying on the dips.

The put/call ratio has dropped to 0.65, the lowest level since July 2021.

On Monday, the S&P 500 index opened slightly higher but fell during the day. The intraday high on Monday was less than 1% away from the historical closing high set on July 16.

Rubner reiterated the view of Goldman Sachs' trading department that the dovish turn in interest rates by the Federal Reserve is reflected in Chairman Powell's speech on Friday, giving the green light to re-leveraging. Therefore, painful trades in the US stock market are expected to be upwards until mid-September.

However, Rubner warns that in three weeks, stock demand could be exhausted, which means that the US stock market may decline again.

After the close of the US stock market on Wednesday, the next major test for the US stock market will come. Nvidia will release its second-quarter financial report, and market expectations are for it to grow more than twice as much as the same period last year.

According to Rubner's calculations, the options market implies that Nvidia's financial report will bring about a 9.35% price volatility, equivalent to a market cap volatility of approximately $298 billion. Rubner believes that considering the sell-off in the US tech sector and hedge funds reducing their positions, Nvidia's profit threshold this quarter is much lower than in previous quarters. "Can you imagine what would happen if Nvidia exceeds expectations after the close of the US stock market on Wednesday?"

According to Goldman Sachs' Prime data, fundamental investors have been selling while non-fundamental investors have been increasing their holdings. Global stocks have had six consecutive weeks of net selling, the largest net selling in two months. The selling is driven by both long and short positions.

In terms of sectors, the information technology sector has had a net selling for the fourth consecutive week, the largest net selling in two months, with 13 out of the past 16 weeks seeing selling. The selling is driven by both long and short positions. Based on Prime data, there is a significant underweighting of the information technology sector, compared to the MSCI global index, with a record low of 9.7% underweighting.

Rubner accurately predicted the US stock market correction at the end of this summer and advised clients to reduce US stock exposure before July 4th.

Editor/ping