S&P 500 Nears Record Highs Amid Bullish Outlook, Key Risks Ahead

S&P 500 Nears Record Highs Amid Bullish Outlook, Key Risks Ahead 

The S&P 500 is nearing its all-time high, even with declining yields, increasing concerns about economic growth, and a Federal Reserve that is starting to acknowledge significant challenges ahead.

Goldman Sachs' Scott Rubner is closely monitoring this potential high, expecting it to be reached this week. He believes that fear of missing out (FOMO) will surge once new records are set. Rubner highlights a favorable three-week trading window for equities until September 16th, during which many traders are out of the office. He estimates $17 billion in daily demand from automated trading systems and corporations this week, which could prevent a bearish market.

Trading perspectives remain unchanged, with equities likely to rise through mid-September as re-leveraging activity picks up. Last week, the Goldman Sachs Corporate Buyback desk recorded its highest demand of 2024, with significant corporate buybacks expected ahead of a blackout period beginning September 13th. Nvidia, a $3.182 trillion company, will report earnings on August 28th, with the options market anticipating a potential 9.35% move, translating to a $298 billion market shift.

Non-fundamental investors have been buying, while fundamental investors have been selling, leading to six consecutive weeks of net global equity sales. Nvidia's performance on earnings day could significantly impact market sentiment, especially as info tech has seen substantial net selling recently. Despite this, there have been consistent inflows into passive equity funds, driven largely by retail investors who are buying dips and maintaining confidence.

Passive inflows, particularly into tech, have been strong for eight weeks, largely due to civilian investors reallocating funds from 401k plans. Money market funds have seen significant outflows due to lower yields, with a growing consensus that credit markets will stabilize before equities do. For now, non-fundamental demand, especially from CTA strategies and volatility markets, is driving equity purchases.

Meanwhile, corporate buyback activity is at its highest level in 2024, with significant buying expected before the blackout window. Asset reallocation from money market funds is another key theme, as lower yields push investors toward equities and bonds.

As September approaches, Rubner remains bullish until the 16th but warns that the latter half of September is historically the worst trading period of the year. He advises caution during this time but expects the S&P 500 to reach new highs in Q4, particularly in November and December.