The S&P 500 index has no choice but to fall according to Goldman Sachs Scott Rubner, tactical strategist at Inc. Group, warns: “I’m not buying the dip.”
That’s because Wednesday, July 17, has historically marked a turning point for benchmark equity returns, said the managing director of Goldman’s global markets division, citing data going back to 1928. And what follows, he said, is August — typically the worst month for outflows from passive equity funds and mutual funds.
With weak seasonality, tight positioning and all the good news already priced in, the index is on the verge of a summer correction. That’s a view Goldman’s trading desk has been leaning toward since at least early June. “The pain market is no longer higher from here,” Rubner wrote in a note to clients Wednesday.
The S&P and technology stocks Nasdaq The 100 index fell Wednesday on concerns about a tougher stance by U.S. politicians toward China and Taiwan, which could hurt global chipmakers.
The declines come after the S&P 500 hit 38 new all-time highs in 2024, putting the stock index on pace for the second-highest closing highs in about 100 years, Rubner wrote, adding that only 1995 is shaping up to be a stronger year.
After this winning streak, stocks are exposed to weak inflows and remain vulnerable to bad news. No inflows are expected in August from passive investors or mutual funds, as capital has already been deployed for the third quarter, Rubner said. As for systematic trend-following funds, positioning has reached its maximum length, indicating that there is no more room for new purchases.
While some investors say strong earnings, a possible cut in short-term interest rates by the Federal Reserve and the increasing chances of Donald Trump winning the US presidential election would provide fresh momentum for stocks, Rubner says they will not be positive catalysts.
Such events are already priced in by the market, and the profit bar for the biggest tech stocks that have propelled the market to all-time highs is remarkably high. “And by high, I mean they have to be great,” he wrote.
Rubner recommends that his clients buy the Nasdaq 100 and S&P 500 December lookback put options, which allow the holder to exercise a derivative at the most advantageous price of the underlying asset over the life of the option.
