Goldman Sachs (NYSE:GS) has a sunny forecast for the summer of 2024, predicting a stock market rally so intense that it described the influx of cash as a “wall of money.” The prediction is based on a fundamental premise that the “risk-on” trade is beginning and will accelerate, alongside other fundamental tailwinds supporting the overall equity markets.
The “Wall of Money” Phenomenon
According to Scott Rubner, a managing director in Goldman Sachs’ global markets division, this surge will be driven by passive equity allocations starting in early July, benefiting from strong seasonal trends and retail investor activity. He explains that this period is historically known for strong seasonal trends and active retail investor activity. In fact, statistically, the first 15 days of July have been the best two-week trading period of the year for equities. This is demonstrated by the S&P 500 (SPX) showing positive returns for nine consecutive Julys, averaging a 3.7% gain. Even more impressive, the Nasdaq 100 Index (NDX) has posted gains for 16 consecutive Julys.
Broadening the Rally Beyond Tech Giants
While the recent gains in the S&P 500 have been heavily concentrated in the “Magnificent Seven” tech giants, Goldman Sachs strategists, led by Cecilia Mariotti, believe there is potential for a broader rally if economic conditions remain favorable and investors start rotating into lagging sectors. This could lead to a more balanced market rally, benefiting a wider range of companies and sectors.
The overall positive market sentiment is keeping it near its highs, supported by strong earnings reports and expectations of future economic growth. As of mid-May 2024, nearly 80% of S&P 500 companies had beaten Wall Street forecasts, contributing to the resilience of stock prices despite potential headwinds like inflation and interest rate uncertainties.
Key Takeaway
Goldman Sachs’ outlook for the summer of 2024 is highly optimistic, with a significant amount of capital expected to enter the equity markets, potentially driving further gains and broadening the rally beyond the tech sector. This inflow of capital is part of a broader trend wherein investors are increasingly moving money from cash into riskier assets, including equities.
