Year-end market rally will start this week, says Goldman's Rubner

Investing.com -- Goldman Sachs technical strategist Scott Rubner anticipates a robust year-end rally for US equities, projecting that the S&P 500 could climb to 6,200.

"We are entering the best seasonal period of the year for US equities," Rubner wrote in a Friday note, asserting that the rally will begin this week and continue into the start of 2025.

Rubner highlights several key trends supporting his view. US equities have seen $105 billion in inflows over the past three weeks, marking one of the largest monthly inflows on record. However, the selling of US tech heavyweights “has put a lid on the rally for now,” he said.

The strategist notes that this wave of capital has largely come from retail investors, who are increasingly leveraging their high year-to-date gains. Moreover, US corporate demand remains robust, with $13.6 billion in registered issuances and $3.8 billion in unregistered deals this month alone.

Historically, December has been a favorable month for equities, particularly during election years. Rubner pointed out that next week marks the start of the holiday trading season, which traditionally includes some of the year's best trading days leading up to Thanksgiving.

He emphasized that this period aligns with patterns observed since 1928, where consolidation phases in November often give way to rallies extending into early January.

Market dynamics also appear supportive. US stocks have recorded inflows for seven consecutive weeks, while European and emerging market funds have experienced persistent outflows.

The rotation from large-cap tech stocks, such as the "Magnificent 7," into smaller-cap and value-driven sectors like financials, industrials, and energy has been a key driver of this trend.

“Selling the big Mag 7 is important for index construction. The Mag 7 stocks represent a 31.71% weighting in the S&P 500 index,” Rubner points out.

Moreover, corporate buyback activity is another key catalyst. November and December historically account for the strongest two-month period of the year for buybacks, with Goldman estimating $960 billion in share repurchases for 2024. This level of activity could provide further support to the market, particularly during low-liquidity trading days around the holidays.

Looking ahead, Rubner sees the January effect—a phenomenon where equities often gain as new capital enters the market—amplifying the rally.

He expects that sidelined investors, particularly those managing large retirement portfolios, may feel compelled to rotate into underperforming sectors, adding additional momentum.

“Historically, good years tend to follow more good years for US equities, and January is when capital gets deployed from the largest asset base. I placed my order for an SPX 7K hat,” Rubner concluded.

Source: Investing.com