A flood of cash from passive equity allocations will pour into the stock market in early July, setting up a continuing rally through the early summer, according to Goldman Sachs Group Inc.’s trading desk.
“New quarter (Q3), new half year (2H), this is when a wall of money comes into the equity market quickly,” Scott Rubner, Goldman’s global markets division managing director and tactical specialist, wrote in a note to clients Wednesday.
In addition, share prices should benefit from strong seasonal trends and rising engagement from retail investors. “I am seeing a re-emergence in retail traders during the summer, they tend to come around in July,” he wrote.
Since 1928, the first 15 days of July have been the best two-week trading period of the year for equities, and they tend to fade after July 17, according to Rubner. The S&P 500 Index has been positive for nine straight Julys, posting an average return of 3.7%. The Nasdaq 100 Index has an even better record, posting gains in 16 straight Julys, with an average return of 4.6%, he noted.
By Rubner’s calculations, roughly nine basis points of new capital gets put to work every July. For this year, that would be $26 billion based on $29 trillion in passive assets available for investment.
“The bar for being short equities right now is very high given these upcoming flows and random market dynamics,” Rubner wrote
The S&P 500 moved back above 5,300 on Wednesday, rising for a fourth consecutive session and approaching a new intraday high, as the world’s largest technology companies drive stocks higher. Nvidia Corp. set another record and now has the second largest weighting in the S&P 500 at 6.6%, passing Apple Inc. at 6.4% and trailing only Microsoft Corp. at 7%.
This article was provided by Bloomberg News.